In yet another sign of the times the UK Governments flagship coronavirus rescue loan scheme has relaxed the repayment terms for Bounce Back loans(BBL) much to the relief of the banks that made them. These loans of up to £ 50k are for small businesses whose operations have been impacted by COVID19. Announced in May last year they have been very popular and are 100% guaranteed by the Government. At the time city analysts warned that they would be a magnet for fraudsters and that the taxpayer would end up on the hook for a lot of bad debt. Well it looks like they were right. When the government gives a guarantee the distributing banks throw caution and proper due diligence to the wind. From the Bankers perspective they knew that the fall out would be horrendous but in view of the fact that they were not on the hook they didn’t care. The trouble is of course for every chancer who has made this into an opportunity or as Dire Straits might “ money for nothing and your chicks for free” there is another honest businessman really striving to do his best. The problem is how do you differentiate when the time to carry out that work is before you distribute the funds.
As far as Fintech start ups are concerned London has a lot going for it so when I see a headline like this I think it deserves a read. The gist of this article is that London’s biggest threats are home grown firstly lack of venture capital and secondly home grown regulation. While this is alarmist it is not something that any government can afford to ignore. Capital moves across borders fairly easily and London has far more avenues than most anyway as well as a first rate legal system, rule of law and all those nice things. Regulation is however a little different. The UK left the EU and excessive European regulation was one of the reasons. The problem is that financial regulation is a self promoting bureaucracy and it is quite easy to lose sight of what the regulation is actually for and who it benefits. Some Fintech’s are even writing software to help businesses comply? Who does this really help?
Libor – I remember that! It used to be the principle method for pricing syndicated loans and I read of the sad case of Tom Hayes who was jailed for LIBOR manipulation. Hayes has paid a heavy price and insists that he is a scapegoat. I wouldn’t be at all surprised. When I was involved in syndicated loans it was the norm to price interest periods based on a the LIBOR rate at the time plus the negotiated margin. However the temptation to influence what borrowers paid was always there. In particular during the 1970’s the very highly leveraged Japanese banks had to pay a premium for interbank deposits. This led to the highly dubious practice of trying to include at least one Japanese Bank as a reference bank. This was usually but not exlusively defined as the rate at which first class banks in the city of London would offer deposits to the bank in question in that currency for the relevant interest period. A Japanese bank would pay a premium of 3/8ths and as one of three reference rates would hike the base funding cost by 1/8th of one percent. All totally open but due to the opaque nature of lending technicalities in those days highly dishonest. Tom Hayes says he did nothing wrong just what everyone else was doing. Plus ca change.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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