Wednesday, 10 December 2008

Extraordinary solutions to extraordinary times, my ideas to help the UK economy through the financial crisis

Speaking to the CBI in November this year, Gordon Brown said “All over the world, policy makers are leaving behind the solutions of yesterday and recognising that extraordinary times require extraordinary actions”. While I expect the most effective solutions to the current crisis will be monetary and regulatory in nature, I propose a couple of ‘out the box’ ideas that I believe will help the most vulnerable in society while hopefully reducing the impact of oncoming recession.

The creation of community banks
Small businesses account for more than half of Britain’s GDP and employ more than 13 million people across the country. I believe the government should promote the formation of strategically placed community banks to help ensure a fair supply of credit to small businesses. These banks could be run by healthy banks (HSBC, Santander) in equity partnerships with government who can target them at specific geographic areas ensuring the most vulnerable groups get the help they need.

A Government sponsored asset manager
I think it would be sensible to establish a Government Sponsored Asset Manager whose sole mandate would be to bid and purchase illiquid and distressed assets from banks. Many assets on bank balance sheets are mispriced owing to the near failure of trust in the interbank lending market. An independent entity that is a ‘buyer of last resort’ – one that has a mandate to analyse and make last bids on those assets – would allow troubled banks to improve solvency. The creation of such an entity should be considered within the context of regulatory reform of financial markets.

There will be more suggestions soon....

Add to Technorati Favorites

No comments: