Leaders: Restricting SME loans | UFOs

In the immediate wake of the 2007-2009 banking crisis, the cry went up “never again”.

Five years on we are still wrestling with the implications of this resolve. Measures were put in hand to strengthen the capital reserves of UK banks so that the chances of a repeat debacle involving billions of pounds of taxpayer rescue would be substantially reduced.

Yesterday the Prudential Regulation Authority announced a tough new leverage ratio and said some of our top banks and building societies still need to fill a £27.1 billion hole in their balance sheets.

The higher stress test put the banks in a trap: they are under pressure to lend more to business – small firms especially – but at the same time they must meet tougher reserve ratios. Concern focuses on Royal Bank of Scotland which accounts for £13.6bn of this total, and Lloyds Banking Group for £8.6bn.

The “good” news is that the banks have put plans in place to cover £13. 7bn of this £27bn total and these plans should be in situ by the end of this year. This shrinks the black hole down to some £13.5bn: still painful with its implication of yet more asset sales, restructuring and capital raising to come, but certainly more manageable.

However, an important caveat must be entered. The real resilience of bank balance sheets can never be assured. Balance sheets were considered strong even as we entered 2007. And it is worrying now that, even with record amounts of cash available for lending and the lowest base rates for 300 years, banks are constrained by the full potential extent of undeclared losses from the previous lending boom. In a typical banking crisis, banks have had to write off about ten per cent of their loans, rising to 15 per cent in a severe crisis. So far the UK big four are reckoned to have written down just 6.2 per cent. We could, on this scenario, have some considerable way to go. Yet many believe commercial property prices on which many business loans were based, have further to fall.

One evident way for the banks to reduce the remaining gap is by continuing to restrict new lending to business. But such lending is vital for any prospect of recovery. The government, through the Bank of England has pledged to provide £190bn to the banks under the Funding for Lending scheme, with a target to increase lending to SMEs by £76bn. But almost every month has brought figures showing a net fall in business lending with the new lending failing to make good the hole left by existing loans the banks have called in. It would be unacceptable for the banks to continue to frustrate recovery by holding on to capital provided to them for the express purpose of increasing business lending. This would be to condemn the economy to an endless treadmill of low growth, leading to weaker business leading to more loan call-ins and foreclosures. The strain must be taken elsewhere.

Aliens within tent need watching

Unidentified Flying Objects may be smarter than we think. Just when the Ministry of Defence decided to pack up its UFO desk in 2009 because it served “no defence purpose” the number of reported sightings trebled.

A strange coincidence? A cunning rearguard action by the UFO desk to keep itself in existence? Or might UFOs themselves have sussed out what the Mod was planning and decided on a dramatic step-up in their “Buzz” rate? Declassified MoD files just released contain no less than 4,400 pages covering the feverish work of the UFO desk in the final two years, 2007-09.

The files contain a letter from a school pupil asking for the truth about UFOs after she had seen strange lights; she enclosed a drawing of an alien in a UFO

waving.

A report was received on the red-hot UFO hotline by someone who had been “living with an alien” in Carlisle. Another report sighting came from a man from Cardiff who claimed a UFO abducted his dog, car and tent while he was camping with friends in 2007. Other reports featured sightings of UFOs over the Houses of Parliament, Stonehenge, and Blackpool Pier.

The desk was closed because it was deemed to have no defence benefit and that in more than 50 years, no UFO sighting ever revealed anything to suggest an extra-terrestrial presence or military threat to the UK.

But that’s hardly the point. The fact that our skies are buzzing with them leaves some of the greatest mysteries of humankind unresolved. What would an alien want with a camping tent? And how many aliens have already settled in the Houses of Parliament?