The first 12 out of 39 pages deal with “context”: basically facts we already knew. It is not until page 13 that we get any concrete policy suggestions. And even then, they are couched in very cautious terms.
So those local bourses Vince’s aides have been telling us about? This is what the paper says:
Some commentators have proposed regional stock exchanges to help develop regionally focused sources of business finance. Such an approach might, however, fragment liquidity and narrow the pool of investors available to each SME.
Hardly a glowing endorsement.
And how about the option of government guaranteed bonds? It’s an idea, says Bis, but:
Measuring the effectiveness of such a scheme in creating additional SME lending would be challenging, however, given the fungibility of bank funding and the difficulty in establishing how much SME lending banks are able to conduct unassisted.
Or the financial activities tax in case banks pay too much in bonuses and dividends (which, given the fact they want banks both to lend and to repair their balance sheets is pretty much the only area that can be squeezed)? Vince Cable said the threat is there because, “We want [the banks] to be aware that the government has options.” But he also admits the bonus tax Labour implemented was more successful at raising revenue for the government than for small or medium-sized businesses.
As for the one policy that has been tried – bank lending targets for part-nationalised banks – no decision has yet been taken on whether to renew those when they run out after 2011.
Two questions occur to me. 1) – Why does the government not have a clearer idea of what to do about bank lending, and 2) – Why did it publish this green paper at all if so much is yet undecided?
To answer the second question first, it seems to be part of a big push by the coalition to appear hyperactive in its first weeks of power. Tony Blair has said before that he wished he had done more in his first term as PM, and perhaps Cameron is keen to learn from that. Perhaps also the coalition believes constant announcements and activity will keep disgruntled backbench MPs on both sides happy.
As for the first question, this is trickier to answer. Part of the reason the green paper is so “green” is because of some tension between Bis and the Treasury about how hard to be on banks. Cable is keen to follow up his pre-election tough talk on bankers with action. George Osborne is understood to be less keen (although Bis officials stress he is more willing to crack down on the sector than Vince had expected him to be).
But the real problem facing both men is that there are no simple answers. They both accept that lending targets proved largely unsuccessful (RBS and Lloyds failed to meet them, without penalty). But there isn’t a great deal more they can do apart from tinkering on the margins. And each minor lever available to ministers carries its own risks, as the carefully-hedged language of the green paper shows.
Ed Miliband recently told reporters he wished Labour had been more active in managing the partially state-owned banks, and that this would have been the only real way to get them lending again. Vince Cable points out, perfectly reasonably, that there is a risk of focusing too much on those two banks and forgetting the rest of the sector. But if the government really wants to force more money into the market it may have to intervene where it can (i.e. with Lloyds and RBS) and hope others follow suit.