Attacking the banks is a popular political sport at the moment and Alastair Darling and his aides piled in on Friday, showing those who attended the meeting with the banks at No.11 Downing Street an unfavourable headline in one of the day's papers. At least those attending got bacon rolls rather than miniscule sandwiches and 'soldiers' of marmalade supplied by caterers who must also have the contract for Back House. (But quite possibly that is the C list menu).
My local MP has also jumped on the bandgwagon, proclaiming in his circular letter that 'This help has strings attached. Banks must mend their ways and stop paying huge bonuses.' I would rather say that they should stop paying bonuses that are unjustified by performance.
In practice the banks have some scope to make cuts in mortgage interest rates as the gap between the key inter-bank lending rate, the three-month Libor, and base rate has narrowed. It fell by about 1 per cent at the end of last week to just under 4.5 per cent, leaving it at 1.5 per cent above base rate.
Another area in which the banks are under pressure is on maintaining overdraft facilities to small businesses and not upping the rates charged. Small businesses do fail with some regularity, in part because they have unrealistic business plans, particularly in relation to cash flow. Admittedly anecdotal evidence from a chamber of commerce network suggests that the two businesses that have failed recently were both regarded as unsound.
Of course, the whole relationship between the banks and the Government is complicated by the fact that it takes three forms: nationalised banks - Northern Rock and Bradford and Bingley; those with substantial government shareholdings; and those that have preferred to look elsewhere for their money, notably Barclays which turned to the Gulf States for recapitalisation. This pleased me as a Barclays customer, but did not please shareholders who felt that their holdings had been diluted by selling a stake at a generous price.
It is worth nothing that Barclays is a bank that has global ambitions and has a business model that does not fit with the UK government as an investor. Royal Bank of Scotland has operations in the US and Asia and a large investment banking division. Its rivals claim that with government as a shareholder it will struggle to attract new investment banking staff or commit to significant investment in operations outside the UK.
It should be noted that the combined Lloyds TSB-HBOS operation (providing it goes ahead) will be largely focused on the UK market and in particular retail customers and SMEs. It is thus well placed to respond to government exhortations to maintain lending to house buyers and small businesses.
Lord Mandelson has made it clear that the bank shareholdings would be managed at arms length from government. This has led to a revival of the idea of the state holding company which in the 1970s was championed by socialists as a mechanism for bringing about creeping nationalisation of the economy. It saw fruition in the National Enterprise Board which was really a mechanism for bailing out lame ducks rather than establishing a vast state commercial empire on then then vaunted Italian model.
The new holding company is to be headed by the chairman of J Sainsbury, Sir Philip Hampton, who has a public service record and John Kingman, a senior Treasury manadrin. The overall aim of UK Financial Investments Limited is to 'protect and create value for the taxpayer as a shareholder.' In other words, there will be no return to old style nationalisation, but some discreet influence will be exerted on the banks, recalling the old days of 'lunch table directives'.