Armed and ready?

As we slip further into recession, banks face a race against time to prevent any worsening of the current economic crisis, but who will make the first move?

It’s good to talk, but the time for action is now. Banks must be forced to make cash available to prevent economies falling even further into recession. No one ever said it would be easy.


Just after 2pm on Friday February 13 shares in Lloyds Banking Group, the company formed after the merger with HBOS, fell more than 30 percent following a trading update. The bank announced an expected £10bn pre-tax loss for HBOS in 2008, much worse than predictions back in November.

The report coincided with official figures that revealed recession in the Eurozone increased at a record rate in the final three months of 2008.
 Output across the 15-nation single currency zone fell by 1.5 percent between October and December, the third successive quarter fall and the fastest since the community was created in 1999.

Germany was worst affected, but all eyes are still on the UK. 
The Bank of England gave the strongest indication yet it may start printing new money in an attempt to ease the economic crisis. Speaking at an inflation report meeting on Tuesday, Governor Mervyn king, described Britain as ‘in a deep recession’. Projections implied that “further easing in monetary policy may well be required” he explained. 
“That is likely to include actions aimed at increasing the supply of money in order to stimulate nominal spending,” he added.

Known as ‘quantitative easing’, talk of making new money available has until now been described as 'only one of several options' being looked at by government. The controversial measure was used most recently to good effect by the Japanese during the severe downturn of the early 1990s. Mr King’s assessment came just days after the Confederation of British Industry warned that two in five firms were cutting staff numbers because of credit-related issues.

This figure rises to almost half when it comes to large firms, 40 percent of which have also cut back on production.
 The CBI - the premier lobbying organisation for UK businesses - urged government to act fast.
“Day by day, constrained credit is damaging our economy, said Richard Lambert, CBI Director-General. "We have urged the government to move as quickly as possible to set out when the various support packages to tackle the credit crunch will come into effect, and to implement them quickly.”


Of those companies seeking new credit, most of the largest sized firms (82 percent) reported their access has deteriorated in the past three months, over half (57 percent) of large businesses and under two-thirds (65 percent) of small and medium-sized firms (SMEs) say the same, according to a CBI report just published. 
Pointing to the state of the global economy, Mr King confirmed an ‘ongoing lack of credit being made available by the financial systems’ was one of two key features of the recession. The other was a lack of confidence, he explained, adding: “Restoring both lending and confidence will not be easy and will take time.”

There has been time enough already.