Will banks actually start lending more money? Should they be split between investment and retail branches? And what should the chancellor do in next week's Budget? These are some of the issues covered in this week's instalment.
These diaries are written by people who work in finance and have had a front row seat as their industry goes through the biggest changes in decades.
They give us regular insiders' updates on the mood in the City of London and the dramatic changes in the world of finance.
Laura (not her real name) works for a commercial bank in London.
Are you sitting down? This may come as a shock... the powers that be have realised that banks make money by lending and that it might be an idea to start doing it again.
Honestly the genius abounding in the financial sector knows no bounds. Please don't think that this spiritual awakening has anything to do with the government either, the collective brain power of the City on a good day is enough to bulldoze round any blocks the regulators try and throw our way and we are hardly going to take business advice from a Cabinet with no financial or business experience.
We probably have about four months before RBS start to get their big guns out again and start pursuing new lending like a thing possessed
To be fair, it wouldn't be entirely accurate to say that we haven't been lending for the last six months or so but trying to get something through credit which isn't backed up by iron-clad gold bullion and a lifetime of history with the bank has been hellish.
There is a natural equilibrium between 'sales' and 'credit' in any bank - and the danger zone is when either of these is too prominent. In the BC years (Before Crunch) sales was where it was at - your target was to grow your lending book and your income by double digits year on year, every year.
Since ground zero we have been in the pits of despair with credit refusing to get their stamp out, all the while 'tsking' at you for ever having lent in the first place. You may think that prudence is no bad thing but banks are realising that if no profit is forthcoming in the 2009 results it will be hard to explain it away as bad debt write offs rather than the reality - we aren't getting new income in.
The non-nationalised among us have realised that we probably have about four months before RBS start to get their big guns out again and start pursuing new lending like a thing possessed, and perhaps a month or so before that Lloyds HBOS will also be in the game.
Regular City Diary readers may remember me bemoaning the navel gazing that was going on back in January and worryingly these people are now waking up and blinking at a countdown to seize the initiative and steal a march on our rivals.
Hang on to your hats!"
Anthony (not his real name) works for an investment bank in the City
It was reported last week that the Bank of England is examining whether Britain's biggest banks should formally separate their investment banking and retail banking operations.
As I work for an investment bank you might expect me to be against the idea but you would be wrong. Being against it is probably why I languish in middle management and have never received a mega bonus. The guys who receive these bonuses will certainly disagree with me.
So why am I a supporter of separation? Let me give you an example of a deal which may never have seen the light of day if investment banks did not have a source of funding from retail savers.
Consider the buyout of Manchester United by the Glazer family. This family could not afford the purchase but financed it by debt. The interest on that debt meant that the parent companies behind the most profitable football club in the country actually lost money in 2008. The reason for the loss is because the hedge funds who hold the debt are charging astronomical interest rates. The funding and advisors who get these deals off the ground are the investment banks who provide bridging finance before selling bonds to investors.
Anthony points out that the Glazer family's takeover of Manchester United was financed by debt.
So who actually benefits from these buyouts?
I am not saying investment banks do not have a purpose in a sophisticated economy. They are advisors and traders who buy and sell. They are more accurately described as broker dealers who underwrite share issues or trade foreign currencies or advise companies on how to grow their business in an organic and controlled way. What they should not do is lend money financed by our hard earned savings deposited with retail banks.
So when politicians talk of banks lending again, they do not include investment banks.
Banks share prices rallied last week when Wells Fargo announced that they would have a profitable first quarter but this does not mean that we should think the crunch is over. We still have to pay for all this and now the focus turns to the Budget.
The City has been an enormous contributor to the UK government's budget and the traders spend their bonus providing work for others when they buy a Bentley, Jaguar or an Aston Martin. Indeed, Porsche's had become less common in the City as your average trader is a very patriotic guy who loves Jeremy Clarkson.
Without City taxes the chancellor has a difficult balancing act. It is probably too early to take money out of the economy and we cannot put more money in
Without City taxes the chancellor has a difficult balancing act. It is probably too early to take money out of the economy and we cannot put more money in. Instead, the government should look at ways of providing stimulus in a focused way that is fully funded by cuts in public spending where there is unnecessary waste. For example, the ID scheme should be scrapped and nanny state initiatives which are obsessed with targets in education and health.
What the chancellor should not do is introduce the car scrapping scheme adopted in Germany. The average person will not buy British cars because they cannot afford an Aston or a Jaguar. They will instead buy cars made in Spain, France and Germany which will not help our economy.
What he should do is increase social housing stock by buying up blocks of flats that stand empty and also spend more refurbishing derelict properties. It should increase the subsidies available for solar panelling and other green initiatives. It should also provide help to small business by cutting their taxes and red tape, particularly with health and safety initiatives in work.
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