Bookmark and ShareVeronika Thiel is a researcher and project manager on nef’s Access to Finance team.

A light at the end of a tunnel - or is it an oncoming train?

A light at the end of a tunnel - or is it an oncoming train?

Barclays is said to be already recovering from the credit crunch whilst most of its clients, and the population at large, still are not even seeing a sliver of the light that could indicate the end of the tunnel is in sight. Small businesses still face cuts in their existing overdraft and credit facilities despite of the fact that their businesses are structurally sound. People with consumer debt still face increased interest rates. Personal insolvencies, as a result of redundancies, are at an all time high (link to insolvency services). Mortgage holders see their interest rates rising. Banks reposess houses more quickly than ever, and debt collectors are also becoming more aggressive.

So what does this increase in banking profits actually mean? Are we seeing a rehabilitation of our broken financial system? Or are we simply on the way to returning to business as usual, with the toxic loans written off?

The simple answer is – no-one knows for sure. There was certainly a gradual return of confidence, meaning that people will want to invest again. But there remains also a certain amount of question marks. As Robert Peston from the BBC argues, banks are reducing the amount of money they lend, so that they simply have more on their books.

In addition, however, the way that banks post their profits can change quickly as they can use different methods of valuing their assets. Asset valuation is not an exact science, and there are various ways of doing so.

Be that as it may, everyone is sighing a breath of relief that at least two banks don’t appear to go the way of Northern Rock (although there are interesting ideas around to breathe new life into it. That relief could be (and in certain quarters, is) giving way to complacency and a return to BAUBAB: Business As Usual and Bonuses Are Back. Despite Barclay’s assurances that bonus payments are reformed, an average of bonus £100,000 for staff at Barclay’s Capital still makes me think that this is more cosmetic.

We probably will have to repeat this until we’re blue in the face – but banking reform has not gone anywhere near enough to create a stable financial system in which systemic crises such as the current one are less likely to happen. And anyone who thinks that the crisis is over forgets that for the millions of unemployed, and those steeped into debt, it’s only the beginning.

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