Credit Easing – Five Questions
The big announcement in Osbone’s speech from a macroeconomic point of view was the talk of ‘credit easing’ – Treasury action to ease loan availability to small and medium sized businesses.
Implicitly the Chancellor has therefore acknowledged that the ‘Project Merlin’ deal with the big banks to ensure credit gets to SMEs is failing. This is a good start but the devil will of course be in the details. Those details remain sketchy but is seems likely that credit easing will take the form of some sort of securitisation process whereby banks (or other investors) lending to SMEs can bundle those small loans into larger bonds and sell them on either to the Treasury, some new government arms length agency or maybe to the Bank of England. In effect this would make the funding of new SME loans much easier – and possibly cheaper.
This all raises a few questions. First, and crucially, how quickly could such an operation be gotten up and running? I suspect it could easily take well over a year. This is is not a quick fix to poor credit availability for SMEs.
Second how large will the programme actually be? This is the kind of crucial detail we really need to be able to assess the impact of such a move.
Third – what does this announcement, from the Chancellor, say about diverging views between HMT and the Bank? MPC member Adam Posen floated a similar (but more comprehensive and BOE funded) scheme a few weeks ago, has that been rejected by the Bank?
Fourth – what will the OBR make of this? Assuming the Treasury can pull together a concrete proposal soon it should be included in the autumn forecast numbers released at the end of November.
Finally – why an indirect scheme like this rather than some form of state backed investment bank focussed on SMEs? Surely that would be a more direct way of dealing with the problem of SME credit access.