Darling calls for responsible lending
Thursday, 13 September 2007 12:00 AM
Alistair Darling has urged Britain's banks to adopt a more prudent attitude to borrowing, signalling the government is cracking down on the culture of easy money.
In one of his first interviews as chancellor, Mr Darling said it would be helpful if lenders returned to "good old fashioned banking".
Banks should ask themselves how they will recover losses if a debt goes unpaid, while consumers should ask themselves how much they can really afford to borrow, he told the Daily Telegraph.
In short, both sides need to "think long and hard" of the risks involved in cheap credit.
He told the newspaper: "Primary responsibility has to rest with people. In crude terms they need to know who they're lending to, how much they're lending and what the risk is.
"Now, that's elementary banking, one might think, but there are times when going back to good old-fashioned banking may not be a bad idea."
Britain's consumer debt has now risen to £1.3 trillion, while the growth of the sub-prime mortgage industry in the USA has helped fuel a summer of volatility in world markets.
But Mr Darling indicated the government would not attempt to manipulate the credit market with more regulations on lending.
Government "cannot stand on the shoes of borrowers or lenders," he said.
Mr Darling did, however, question the role of the City, suggesting it is very good at dreaming up a "fantastic way of making money" but does not ask how it is made or what the risks are.
As chancellor, one of Gordon Brown's first acts was to devolve responsibility for setting interest rates to the monetary policy committee - making the Bank of England central in determining the conditions that make credit attractive to banks or consumers.
There are now increasing signs of a credit squeeze, as rising interest rates mean some borrowers will struggle to repay debts and consumers avoid the High Street in a bid to avoid fresh borrowing.
Official labour market figures from the Office of National Statistics show pay growth is rising slower than inflation, further increasing the pressure on consumers.
Shadow chief secretary to the Treasury, Philip Hammond, said: "With take home pay rising more slowly than the cost of living, family budgets being squeezed and mortgage costs rising, Gordon Brown has delivered an economic nightmare for many of Britain's hardworking families."
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