Britannia Radio

Two postings from Edmund Conway today follow.  The first is critical  
as it shows that for all the activity and expenditure of our money  
Gordon Brown’s bank bail-out policy is not working and is boiling up  
to a critical phase - again.  Following on from my earlier “Wrong  
policies being pursued by Brown” we have good reason for concern.

It seems even more urgent that the retail banking arms of the RBS and  
HBOS should be split from the investment banking sectors of these  
banks and the latter be restructured and elements in them allowed to  
fail.

The second is his assessment of the G20 finance ministers’ meeting,  
which boils down to “Well. it could have been worse”.

xxxxxxxxx cs
=========================
TELEGRAPH        16.3.09
Bank of England warns tensions in banking system at fever pitch
Tensions in the financial system are approaching the fever pitch they  
reached before the collapse of Lehman Brothers last October, the Bank  
of England has warned.

    By Edmund Conway, Economics Editor

Investors have restrained the amount they are willing to lend, banks  
have grown reluctant to entrust their cash to each other and levels  
of stress in the system have hit new peaks, according to the Bank's  
Quarterly Bulletin.

The Bank's chief economist, Spencer Dale, warns in the report,  
published today, that: "Against the background of a significant and  
synchronised weakening in international economic activity, market  
conditions generally remained strained. In particular, bank funding  
markets became more difficult again reflecting renewed concerns about  
the scale of potential credit losses and write-downs facing banks."

The report lays bare the fears investors currently have about the  
creditworthiness of Britain's biggest banks. It reveals that a key  
measure of interbank health - the spread between the London Interbank  
Offered Rate (Libor) and expected interest rate levels had "started  
to widen again" while "contacts reported some increased reluctance to  
lend to banks beyond very short maturities."

The main worry haunting investors is the threat that banks could be  
nationalised and that financial institutions are harbouring "ongoing  
balance sheet constraints".

However, most worryingly, it warns that the credit default swap  
spread rates on large banks - a key measure of concerns about their  
possibly insolvency - picked up to their highest level since just  
before the collapse of Lehman.

The Bulletin says: "With a number of banks reporting large credit  
losses and write-downs for 2008 Q4, perceptions about bank  
counterparty risk appeared to pick up again. Consistent with that,  
premia on UK banks' credit default swaps rose, and approached levels  
reached in October 2008 when fears about system-wide failure were  
intense."
++++++++++++++++++++
G20: Analysis of finance ministers' summit
Trying to unpick the dynamics of an international summit in the hours  
and days after it finishes is no easy task.

    By Edmund Conway, Economics Editor

Predictably in the concluding press conferences of the G20 finance  
ministers' summit in Horsham on Saturday all the major figures came  
out afterwards and declared that we were witnessing action and co- 
operation on an unprecedented scale.

It was, said Alistair Darling, a "major step forward" in facing the  
economic and financial crisis that still rages throughout the world.  
His comments were echoed by US Treasury Secretary Tim Geithner, who  
said: "You are seeing the world move together at a speed and on a  
scale without precedent in modern times."

For all this rather predictable grand verbiage, however, there was a  
profound sense as the G20 finance ministers departed for their  
respective corners of the globe that the thing was, at heart, a  
disappointment.

The problem was embodied by the closely-scrutinised concluding  
communique. The Chancellor had insisted at the start of the weekend  
that the drafts for the statement were too long.

It needed to be whittled down to one page, to demonstrate how serious  
and stark were the issues facing the economy, and how determined were  
the G20 nations to solving them. In the event, the sherpas got it  
down from more than three pages to a page and a half.

The event concluded with a sense of ambition half-thwarted. On the  
one hand there was no great blow-up between the Europeans, who wanted  
the focus to be further regulation of financial markets, and the  
Americans, who wanted more specific targets for government bail-outs  
of both banks and broader economies.

All ministers genuinely did present a united front, with little  
sniping about the differences that still lurk under the surface. But  
on the other hand, it was no clearer after Saturday what the heads of  
state meeting for the full G20 summit in London next month will  
really focus on.

There was a commitment to overhauling the International Monetary  
Fund, giving more say to China, and pumping more money in to help it  
protect the most vulnerable economies. But there was no firm figure  
on how much this world emergency fund will increase by - though  
insiders reckon it will definitely more than double from the current  
$500 billion.

There was certainly some intriguing and important mood music. Clearly  
the Western nations are keen to keep the Chinese and other developing  
nations on-side, recognising that much of the cash to prop up the  
IMF, or for that matter US Treasuries, depends on them.

There was important behind-the-scenes progress on the regulation of  
hedge funds as well. Although things will not change overnight, the  
G20 has signalled that in the future hedge funds will have to be much  
more stringently regulated. It may be that historians look back at  
this weekend and declare that that was the moment the shape of the  
financial system, and particularly the shadow banking system, started  
to change forever. But this is probably wishful thinking.

As indeed was the hope that the G20 summit would produce a conclusive  
answer for the final crisis. The lie is that there could be one  
moment - or indeed one menu of options - that will be either a silver  
bullet or supreme catalyst for solving this mess. The sooner people  
realise that this is too much to expect of the G20, and at the London  
Summit on April 2, the better.

This is rather a depressing thought. However, the solace is that, at  
least, no-one now doubts the scale of the problems before them and,  
most importantly that the world's biggest economies are still talking  
to each other.

Mr Darling drew the comparison between the 1933 summit in London  
which failed to provide a solution to the Great Depression. The main  
reason that meeting was a failure was that not all of the major  
protagonists (most notably Franklin Roosevelt) even turned up. Those  
that appeared violently disagreed on a solution. We ought to be more  
than relieved that, at the G20 summit on Saturday, nothing of the  
scale of that disaster took place. We ought to hope that remains the  
case, and that future summits will be characterised more by boredom  
and predictability than by surprises.