Don’t say it too loudly but history looks like it is repeating itself. Yields on Italian bonds are climbing and the differential between Italian and German sovereign debt are widening. Heard it all before? Of course you have because the root causes have never been dealt with. I remember when International banks in the early 1970’sfirst started to get their heads around sovereign risk and how they planned for diversified portfolios. Since then the global financial markets have changed beyond recognition as investment banks replaced sovereign bank lenders and QE helped create wealth bubbles through family Offices, Hedge funds, boutiques etc. But the fundamentals of lending haven’t changed and at the end of the day holders of these bonds want their money back. Italy has to repay the best part of three quarters of a trillion Euros over the next three years. Against this background the ECB has to keep printing money which is the glue preventing the Eurozone from falling apart. At the same time Germany has seen the spectre of inflation anathema to many Germans and the slowdown of manufacturing for export threatens its economic dominance. Its hard to see where this ends up. Tough choices beckon.
Gordon Brown took the decision to give the Bank of England control of monetary policy 25 years ago. Doesn’t time fly when you’re having fun. The initial decision was to take politicians out of the decision making loop. Generally a good move but the Bank of England like all lenders is managing an ever changing landscape and has to adapt accordingly. Capital Economics CEO Roger Bootle says that there is nothing wrong with the mandate but they need to do better. Andrew Bailey ex head of the FCA financial regulation was arguably too establishment and inward looking and, surrounded by consensus bankers on the MPC blue sky real world thinking was replaced by group think. I agree groupthink has triumphed. As he points out there is nothing wrong with the mandate it just needs to be handled better by the real people who sit on the Monetary Policy committee.
The FCA are clearly worried about misleading terminology being used to tempt gullible borrowers biting off more than they can chew during a cost of living crisis. They have apparently written to 28,000 lenders and brokers dispensing their wisdom. There is however an elephant in the room in the form of flavour of the month Buy Now Pay Later which is unregulated. Nevertheless it goes to show the difficulty in describing how difficult it is to define terminology as nebulous as misleading. For example “no credit checks”. It this really misleading if there are no credit checks? The real problem in consumer credit is sky high interest rates that punters are prepared to pay to get access to credit that they cannot afford from lenders that don’t care. The clearing banks used to provide this kind of service. Sadly no longer. There are lots of reasons for this and none of them are going to be solved by heavy handed regulators who have never lent money in their lives.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information. For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.
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