Confusion at the centre?

Banks and bankers are the scapegoats for politicians and others.

Those in power, however, are expecting contrition to change too much.

The banks were responsible for the credit crunch. The reason was that private saving was too little and the banks had inadequate capital to back lending. Interest rates were low and the government encouraged people to borrow ever more to finance an asset bubble and a life-style above that dictated by their incomes. They deposited too little

The politicians are now demanding that they lend more, to help the housing market and to promote economic recovery. We hear stories of small businesses unable to obtain finance, but RBS chief saying that they cannot find enough applicants for the money they have to lend

At the same time the Regulator is demanding that banks build up their capital in order to be able to finance (future) lending with greater security.

There's a conflict here surely!

Now we have Lloyds, encouraged into an unwise marriage with HBOS just over a year ago by the government, (could it have been Scottish votes which led to this?), and now Lloyds are trying to raise funds by a rights issue while forbidden to pay dividends to increase their capital and to avoid the expensive government toxic asset insurance scheme. This is all taking place while Lloyds are under sentence to sell off over 600 branches, admittedly by the direction of the EU regulator.

Most people feel that there is a shortage of funds for lending, and economic recovery will need this. The various actors in this - Treasury, FSA, and EU regulator have the banks in an internally contradictory straitjacket.

Surely the changes in banking regulation could take a back seat until the economy recovers sufficiently to deal with a bewildered and labouring banking system?