Vince Cable, the Secretary of State for Business, has caused something of a storm this morning. It seems he has rather taken exception to the Bank of England’s rules on bank capital, which he regards as too onerous. Cable referred to the Bank, perhaps in a moment of frustration born of this intense heat, as the “capital Taliban.” What on earth has come over him?
Choice of words notwithstanding, it is possible to sympathise with Cable’s outburst. Britain’s banks are being pulled in two directions at once. Since the hideous spectacle of the 2008 crash, regulators have insisted that banks hold more money to protect them against a rainy day. When problems hit, the thinking goes, banks will have emergency reserves with which to buy themselves out of trouble.
But at the same time as being urged to stockpile this emergency cash—regulatory capital—banks are also being encouraged to lend more. The public wants to borrow money and the government wants banks to lend it to them. And so the message to banks is simultaneously—save more, but also lend more.
Seen in this context, Cable’s intervention—or perhaps “outburst”—begins to take logical shape, from a political point of view at least. Britain is still bumbling along with a weedy growth rate of less than 1 per cent. Everyone knows that the steroidal shot of greater bank lending would be a boost to the economy, but the Bank of England’s insistence that the banks should hoard more capital is preventing this cash injection. It is this that led to Vince’s “Taliban” comments.
But perhaps more surprising than his choice of words is the spectacle of a Lib Dem Secretary of State taking the side of the banks against the regulator. Who would have thought that?
