Government tells banks to lend

Goverment directed credit was a key feature of centrally planned economies. While the UK might be a long way from transforming into the new GDR, government control over credit policy is always and everywhere a bad idea.

Sadly, this is one lesson we have to relearn.

Royal Bank of Scotland and Lloyds TSB will this week pledge to increase new mortgage lending by more than £40 billion as part of the Government's latest bail-out of the country's high-street banks. The two banks have agreed to increase loans to homeowners and small businesses in return for about £500 billion of taxpayers' assistance. The deal will be announced before the end of the week.

The commitment follows a similar pledge by Northern Rock earlier this week to boost lending by about £14 billion over the next two years.It is hoped that the lending pledges will help kick-start the housing market. Other banks participating in the Government bailout will also have to make similar specific commitments.

(From the Telegraph)