Flaherty, bank chiefs square off on lending
So is there a credit crunch? I must admit after reading this Globe and Mail RoB story I am not at all sure. It is also clear that other governments think there is – and blame the banks – this story quotes Nicolas Sarkozy, and the Guardian has a similar story from the UK. There the banks say they are lending more – but there are fewer of them now, so the total amount of lending is down.
Here we have not seen the big shake out of lenders that has hit London and New York. And according to the Bank of Montreal’s analyst “Canadian banks are still granting credit at a very fast rate, one that could even be called irresponsible given the state of the global economy”. Becuase that is the heart of the issue. If credit worthy people and businesses cannot get credit there is a crunch. But creditworthiness is now very much in question. Many asssets – such as property, stocks and shares – are now worth quite a bit less than they were just a few months ago. So there is less security in lending against this type of colateral. With everybody spending less, loans to finance ventures that depend on rising sales also look much more risky.
Even the availability of future revenue streams that do not depend on sales – such as the ability of governments to tax their citizens – look more dubious in a recession – or is it really a depression? If I worked for a bank as an analyst and Translink came knocking for a loan based on their prospects of a new revenue stream – so far undefined but possibly a new version of the vehicle levy – I would not be very postive in my assessment of their prospects.
So the question of the viability of possible future P3 partnerships for all sorts of government projects including transportation infrastructure of all kinds seems to be far from resolved.