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Thursday, February 10, 2011

Project Merlin - Epilogue

Now that Project Merlin (the agreement between the government and the banks that, in theory, will regulate their behaviour) has been finally agreed and formally announced, the theory spun by the government is that we can move on from bank bashing.

Fair enough, maybe, if the banks actually make good on their promises.

However, the reality is that lending and the terms and conditions attached to that lending is unlikely to improve much (from the perspective of the corporate/individual borrower).

Even though interest rates remain fixed (no change today by the MPC) at historically rock bottom levels, the banks are making a nice "turn" on the difference between base rate and the rate that they charge borrowers and the spread between lending and savings rates.

The question that Osborne has not answered is, if the banks do not honour the agreement both in terms of substance and form what will he do then?

Don't tell me the answer to that though, tell him because I don't think that he knows the answer.

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