A report from the Treasury Select Committee, which is currently examining the events surrounding the banking crisis, suggests that the Government’s bank bail-out schemes will fail to free up lending.
Initial efforts to recapitalise banks in October were followed by further measures this month, as a lack of credit continued to present a serious threat to the UK economy.
The report suggests that the terms of the recapitalisation of Royal Bank of Scotland and Lloyds Banking Group had not encouraged the banks to lend and that they should be re-examined.
The point is illustrated by the Government’s need to threaten banks benefiting from the October scheme with legislation, unless they restore credit lines to individuals and businesses.
According to the committee of MPs, the problems identified mean that the Treasury’s forecast that the economy will begin to grow again in the second half of 2009 is too optimistic.
This view is also held by leading economists and the International Monetary Fund, which yesterday warned that in 2009 world economic growth is set to fall to its lowest level since World War II and that the UK economy will be the worst affected of all the developed nations, contracting by 2.8% this year.