As Britain’s banking chiefs sit down for their Easter Sunday lunch today, they have plenty to think about. The long weekend is a perfect time to reflect on the extraordinary developments of the last two months, amid mounting fears for the health of the UK economy, which is forecast to shrink by a third if the lockdown continues into June. Put simply, there is no playbook for how to get out of this crisis and nobody knows when the lockdown will be lifted.
One thing is certain, however. UK banks will play a critical role in supporting the economy. And many are asking if they are strong enough to withstand the storm ahead.
Ever since the 2008 financial crisis, regulators have been preparing banks for another catastrophic recession.
三级成人视频An annual health check, designed to ensure major banks can withstand a serious downturn and keep on lending, assesses how the industry would cope if UK GDP fell 4.7pc and unemployment peaked at 9.2pc. All the banks passed the recent tests, but a pandemic like this has never been included as a potential scenario.
In a matter of weeks, five years of employment growth has been wiped out and two million workers have lost their jobs – the biggest blow to British employment on record and more than twice as big a crunch as during the financial crisis, when employment fell by a peak of 740,000.
This is uncharted territory.
三级成人视频Sir Philip Hampton, who was parachuted into RBS as chairman at the height of the financial crisis, says nobody yet knows what bank losses might be, because so much depends on the timing and nature of the lockdown exit. It is not a simple issue, nor one that can easily be determined amid such uncertainty.
“Banks get in trouble if their capital may not be sufficient to deal with losses,” he says. “There’s still, I think, an expectation that governments will do everything they can to stop a big bank failing. It’s also likely that bank losses will be reduced by government intervention in areas of loan loss exposure. It may well be that governments end up investing directly in some businesses to help them survive. That again will help banks.”
三级成人视频Most experts do not currently expect the pandemic to lead to an existential crisis for banks. Post-crisis rules mean they have far more capital than in 2008, and are relatively robust.
三级成人视频“The important thing with the stresses is how severe and how long they exist. A short, sharp shock is much less damaging than less severe stresses applied over several years. So the rate of unemployment needs to be considered over a full year and not just during the peak of lockdown,” says Paul Lynam, chief executive of Secure Trust Bank and a board member of industry lobby group UK Finance.
“The stresses in the [annual Bank of England] tests were assumed to apply over a much longer time than we expect with Covid-19. And the tests did not assume any state action. The unprecedented measures taken by the Government and regulators will clearly mean it will be less damaging than would otherwise be the case.”
三级成人视频Bosses from RBS and Lloyds, both bailed out in the last crisis, say this scenario is not like the last one. This time, companies around the world are relying on banks for support. Ratings agency Scope says lenders have to be a “key piece of the puzzle”, while former Bank of England governor Mark Carney has argued that while the financial system was the “core of the problem” in 2008, this time “it can be part of the solution”.
But the banking sector is struggling to redeem itself in the eyes of the public. Business owners scrambling to save their companies are angry that they are still having problems with the very lenders they saved when billions of pounds of taxpayers’ money was pumped into bank bailouts.
Tim Colman, owner of racing car maker Chevron Cars, says he has been trying to get hold of the emergency loans scheme for three weeks and counting. His bank first told him no such scheme existed, then offered him a high-interest loan. Now, in week three, he is waiting for a response.
“My experience of the high street banks is nothing short of catastrophic,” he wrote to the British Business Bank (BBB), administrator of the loans, on Thursday. “Some considerable time after the Chancellor’s announcement I have no funding, and with Easter now upon us I cannot expect any change for the next five days.”
三级成人视频Colman says that without urgent help, he will have to close his 55-year-old business. And many small business owners share his frustration. Since the unprecedented package of government-backed loans was launched three weeks ago, UK banks have been attacked by MPs, business owners and lobby groups for dragging their feet. Rishi Sunak was forced to overhaul the aid package this month after it emerged that fewer than 1pc of small business inquiries about loans had led to approvals.
Banking insiders argue that they tried to flag potential flaws with the process before it launched, and that they were given an impossible task, with terms dropped on them at 3am the night before the scheme had to be implemented. But while lending doubled last week to £453m in the two days after the Chancellor’s reforms, the Federation of Small Businesses (FSB) says its members are still facing issues getting hold of their banks or finding the application forms far too onerous, with demands for detailed forecasts when society is shut down.
“Banks are still asking for forecasts in an environment where thousands of businesses have been told to close. These are supposed to be assessments of how well your business was doing before the outbreak, not a quiz on when you think the lockdown will end,” says Mike Cherry, the FSB chairman.
“We’re still hearing from members who are yet to reach the application stage for an emergency loan, despite making initial inquiries many days ago.”
Many of the country’s smallest businesses also don’t want to borrow large sums to survive. Dr Garry Palmer, founder of fitness testing business Sportstest, says his bank told him he needs to borrow at least £25,000 – more than he could manage – to access the state-backed Coronavirus Business Interruption Loan Scheme (CBILS). And while CBILS offers loans of up to £5m and is interest-free for 12 months, he was offered a far less attractive package.
三级成人视频“They said I could apply for their standard business loan. They could not give me a specific interest rate, but said it would be between 6pc and 20pc and any payment holiday would be charged at full interest. So really not supportive,” he says.
三级成人视频“The messaging was basically ‘we are really busy, please do not disturb us.’ The exact words of my adviser were: ‘unless the Government forces us to, we will not be offering CBILS loans of less than 25k’.”
Tory MP Kevin Hollinrake, co-chairman of the All Party Parliamentary Group on Fair Business Banking, believes big banks should “think outside the box” and partner with alternative lenders to offer smaller loans quickly.
三级成人视频“If high street banks don’t want to [lend small amounts under CBILS] because it’s not worth getting out of bed for, we need non-bank and alternative lenders to specialise in that side of the market,” he says. “It’s Easter weekend and payroll and supplier payments will be due at the end of next week. We have four working days to resolve this.”
三级成人视频Alternative lenders are frustrated they can’t do more to help. Oliver Prill, who runs mobile-only lender Tide, fears that many small businesses are not being reached by the limited number of accredited banks currently offering the emergency cash. He feels it is taking too long for his business to be accredited as a CBILS lender.
三级成人视频“To date, we have only received an email and phone call to acknowledge receipt of our ‘expression of interest’, and have not even been invited to apply to the scheme,” he says. “Fintechs have the technology to assess applications and make decisions very quickly and effectively. It seems like a no-brainer to us.”
Lynam argues that post-crisis reforms are one reason the big banks can do nothing in a hurry. “The rules impose serious obligations on banks and individual bankers to act with skill, care and diligence,” he says.
三级成人视频The Government is considering options other than borrowing, such as taking emergency stakes in companies on the brink of collapse. This would echo Treasury measures in 2008, to recapitalise banks.