The government has said on a number of occasions that it wants the banks to resume lending money to home-buyers and small businesses at the same levels as before the start of the credit crunch. There’s only one problem: doing so would be a sure-fire way to bankrupt the banks. And either the government doesn’t know it (in which case it’s stupid), or it does know it (in which case it’s lying to the public).
If you want to understand why bank lending can never be the same, look no further than Robert Peston’s post on HBOS’s last financial results as an independent entity. HBOS was amongst the most willing of lenders to both companies and home-buyers, and it has ended up with 47% of its business loans going bad. And, when you’re lending a total of £116 billion to business, that’s a lot of potential for loss – a risk which will now have to be paid for by the taxpayer.