Credit Crunch 2

Credit Crunch 2.

Last week the Bank of England and the Financial Conduct Authority issued warnings to banks to prepare for any Brexit fall out with increased capital provision.  In addition, interest rates have been kept at low levels making it difficult for banks to make money on deposits or indeed attract new deposits to boost capital reserves.  Indeed, the practice of ‘fractional’ banking where banks are lending money that they do not have has increased leaving them further exposed.

In addition, MPs and the Bank of England have raised concerns about unsecured debt.  Unsecured debt is debt that has no assets linked to it.  For example, car finance usually has the security of the car, mortgage debt is secured on the property.  Unsecured debt literally means that – it is not secure.

Unsecured debts levels in the UK have reached levels that were last seen in the Credit Crunch crisis of 2007-09.  Interest free periods on credit card debt transfers are increasing, again making little or no money for banking groups.  This again leaves finance groups at risk, if the economy suffers during Brexit, if people lose their jobs or are unable to meet their debt repayments, banks will suffer.  This is the concern of MPs, the Bank of England and the Financial Conduct Authority.

It could either be Credit Crunch 2 or if banks make the right decision to tighten lending/credit and build up capital reserves, it can be avoided.

Watch this space.