The Archbishop of Canterbury has rightly drawn attention to the high interest rates charged by Wonga. He should focus also on other lenders,including 'doorstop lenders' operating under very respectable sounding names and charging high interest rates.
The alternatives to Wonga and doorstop lenders probably are loan sharks and other even less savoury people. So the Archbishop's idea of encouraging Credit Unions seems good.
But the funds Credit Unions have to lend are drawn principally from their members. So the amount they can lend is restricted to the wealth of their members. Unlike other lenders who can get their funds from a wider range of sources.
Should state institutions such as the National Savings Bank also start lending to meet the needs of those that are starved of credit?
The Archbishop is a member of the Banking Commission. The new regulatory arrangements which demand higher capital requirements from banks may constrain lending even more. Perhaps he should ask whether the changes really are necessary. Some have argued that the UK regulatory arrangements at the time of the crisis were sound (unlike the US with their focus on leverage ratio which encouraged the securitsation of loans which is believed to have fuelled the crisis). But although the design of our arrangements may have been sound, there may have been a failure of execution.
Perhaps we should ask whether the banks themselves and their regulator at the time were aware that certain banks were running out of capital and others were potentially requiring liquidity support from the lender of last resort, the Bank of England. If such action, for example strengthening capital resources or liquidity support from the Bank of England, were taken in time, perhaps we would have come through the crisis better and perhaps there would be cheaper loans available more freely now?
It would seem likely that there were banks other than Northern Rock that needed liquidity support; presumably they received it without publicity. Perhaps Northern Rock should have received it too?
Some common sense and open discussion about our financial industry may help us with making arrangements for a financial system that meets the people's needs as well as preserving London's position as the world's pre-eminent financial centre.
The early Christians tried to help their brethren in need. Apart from helping directly, perhaps we should pay attention to financial system arrangements also?
