COMMENT : Banks must resign themselves to more openness
Thursday 20 April 1995
It has been more than a year since Eddie George said both sides were at fault in the small business/banking war - both unreasonable small businesses and insensitive big banks. He promised that the Bank of England would try to develop criteria for monitoring the relationship between banks and small firms more objectively.
The aim of this latest initiative is not so much to expose charging practices to the cold light of day, though this might be a side-effect, as to find out more about how monetary policy is transmitted through the economy. The commercial banks fear a rather broader purpose than the understanding of economic policy, however.
They argue that further interest rate information - even averaged across all lenders and broad categories of borrowers - is too sensitive to publish. Unlike the mortgage market, where the rules for rates for different categories of borrower are clear and simple, there are wide variations in business loans, a practice justified by the need to allow for different degrees of risk. The charge on a small business loan can vary from 1 to 5 or more percentage points above base rate. Transaction charges also vary hugely. It is easy to see how tables of interest charges would be used as another weapon to bludgeon the big, bad banks by the unfortunates paying above average.
The banks should resign themselves to providing more information and educating the public about it, however. If the Bank of England wanted to publish commercially sensitive details about individual banks' charges, then it might be a different matter. But what the Bank wants to do is benchmark the cost of different types of lending and record how it changes.
Since almost all small businesses seem to feel aggrieved about their banks, a fair proportion might find themselves pleasantly surprised to find they are paying less than the average interest rate. Anything that might help the cause of competition in this oligopoly of an industry, as transparency surely would, must in any case be a good thing.
Not just the Bank of England but also the public needs to assess how well monetary policy is working, as opposed to how much banks are expanding and contracting their margins on different kinds of business. The transparency of interest rate decisions is an important element of the credibility of the policy regime the Bank is trying to operate. The commercial banks should accept that more openness on their part would be in the public interest. If they are not prepared to provide the information voluntarily, then they should be forced to.
Cable has a long wait ahead for the pay-off
The cable industry investment bubble seems to have been a more short- lived phenomenon than even the sceptics were predicting. With General Cable, which has been marketing a new issue of shares in recent days, it has well and truly burst.
To get the issue away, the sponsors have had to considerably reduce the asking price. It is not hard to see why. In little more than a year there have been six listings on the US Nasdaq exchange of UK cable companies, and two in the UK since last autumn. The market's appetite for this particular investment delicacy has been force-fed to the point of acute indigestion. Two recently listed UK cable companies - TeleWest and Videotron - are both trading below their issue price. And Nynex CableComms was last week forced to delay its float, citing problems with US regulators.
With General Cable now deciding to lower its sights, pricing its stock at a more modest 190p a share rather than the hoped-for upper limit of 225p, the signal will have been sent out to cable companies waiting in the wings that investors for, the time being at least, have had enough. This is not to suggest that the sector is fundamentally flawed - far from it. With three revenue streams to tap - residential cable, residential telephony and business telephony - the industry is more or less assured of a viable future. Its main competition on the broadcasting side, satellite, is forecast to reach a plateau within two or three years. Moreoever, BT is to be kept out of the cable market until the end of the decade, giving cable operators as good a chance as any commercial business ever gets to establish themselves.
But the pay-off won't come for many years yet. Most of the network has not even been built, while there remains resistance among potential customers in areas where cable is available. No wonder investors are looking askance at inflated issue prices and shunning some of the companies that have already come to market. The next few cable operators in the queue will have to considerably lower their expectations.
Ford has always had its logic
The Ford pay settlement used to be an annual event almost as important as the Budget in setting the agenda for the economy. Would it force the pace on wage inflation, lead to a strike that could undermine the trade figures or start a new round of productivity improvements? The nation, and the rest of manufacturing industry, waited with bated breath for smoke signals from Dagenham, a byword for difficult industrial relations.
Ford repeatedly threatened to move production and close the plant as it battled with high costs and low output. In 1989, it actually went through with the threat and moved production of the Sierra away from the troublesome Essex men. Now those days are history and Dagenham is expanding with a £200m diesel engine plant.
Indeed, Essex stands to benefit greatly from Ford's reorganisation into the first truly global car company in which models for different markets will have far more in common than they do now. And so will the components industry, which has become a British success story, with the help of a lot of prompting from Japanese manufacturers that have set up here.
But although Dagenham no doubt deserves its new-found reputation, the decision to invest in Britain also has something in common with the logic that kept Ford here through even the worst times. Britain still offers cheap labour and very little in the way of industrial relations red tape, the primary reason the Japanese have been so strongly attracted to the UK over the last 10 years. Eurosceptics beware, they also come here because Britain provides a gateway to Europe.
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