Yesterday, Hector Sants, Chief Executive of the Financial Services Authority, warned that banks will have to change the way they do business.
For finance fans, he specifically said that banks will have to keep more of their loans on their own books rather than selling them on- which was one of the causes of the credit crunch. Bundles of debt, of varying quality, seem to have been sold between banks, until nobody was sure what they had bought. It’s rather like those dodgy auction shops on Oxford Street, where gullible punters buy a black bag and aren’t allowed to open it until they leave. One in a hundred contains an iPod- the other 99 contain some horrible piece of tat.
But I digress. The fact is, I am a fan of the credit crunch. This could be very good indeed for smart businesses- and many small businesses. Banks are now going to be much more responsible for their own debts. After all, if you borrowed my hard-earned cash, rather than cash I can borrow from someone else, I’m going to be much more concerned with what you intend to do with it.
This could mean something very special happening. We could return to the times when- shock horror- you actually knew your bank manager. He took an interest in your business. He had some business experience himself, and wasn’t a spotty 22-year-old called Daz.
When I started my first company, the only time I heard from my business bank manager was when he wanted to sell me a mortgage. I said: “By all means sell me a mortgage. But first, to prove you know something about my business, tell me what I do for a living.” He couldn’t answer. He had no clue who I was or what I did. That’s how irresponsible lending happens.
Sure, it may be harder to obtain credit. But the sooner we return to credit which is made available for a good reason to quality entrepreneurs, the better.
Filed under: current affairs, finance | Tagged: banks, credit, credit crunch, finance, lending
