Don’t bash banks for making money.
Posted on August 10th 2009
Last week saw the return of bank bashing. This time not because they have lost lots of cash but because some are reporting bumper profits. Clearly, there are still huge loss figures contained within the numbers but other activities especially investment banking appears to be reaping huge rewards. I for one will not be joining in as until the banks repair the damage to their balance sheets they are highly unlikely to start lending enough money to sustain an economic recovery.
The banks need to make big profits in order to cover big losses and they also need to deleverage to bring the total exposure of their balance sheets under control, both of these activities mean less loans in the short term to homeowners and business not more.
Therefore, it is likely to be some time before we see any meaningful increases in credit availability and a whole dearth of borrowers will be starved of credit. It is very much in our interest for the banks to make profits over the short to medium term even if it feels unjust given the huge amount of taxpayer cash that was used to bail them out only a few months ago. Unfortunately, unless borrowers have a squeaky clean credit history, a large deposit and a pretty predictable income it is going to remain difficult to get a mortgage. Let’s hope the banks sort out their demons in short order.
