‘Northern Rock does not have funding difficulties.’
We have all become very accustomed now to the bromides of the new banking landscape - the sector that has put the dramatic ‘deja’ in the volatile ‘vu’ for all of us over the past year.
Yesterday it was Bradford & Bingley’s turn to put out what have become pointless reassurances from the banking trenches.
Pointless because perception is as important as financial strength in banking, never more so than in these mad times.
A bank can tell the public and stock market until it is blue in the balance sheet that its finances are strong.
But if suspicions are there it only gets worse. It goes like this. The bank’s business mo
del is scrutinised like never before as the market tries to work out how it is funded and therefore how vulnerable it is to the credit crunchi.
If the conclusion is negative the bank’s share price gets hammered, both before and after any reassurance, and the bank’s demise becomes a self-fulfilling prophecy.
Northern Rock, Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, HBOS, B&B.
You can see why people are sceptical of bankers’ reassuring them now. In current frantic conditions, the very fact that you are having to reassure is only a couple of steps removed from what Treasury Select Committee chairman John McFall memorably dubbed ‘shouting fire in a packed cinema’ in the wake of Northern Rock’s downfall.
In the current crazy-mirror world of finance, the need to make a statement of your financial strength is the new panic.
Stripping aside the peculiarity of the new situation, the upshot of all this looks to be that the sector will be less competitive in future, with fewer players.
But the ones left standing are going to be bigger, better able to handle the market turbulence, and far more conservative in their lending policies than they have been.
There is no sign the mortgage market looks likely to be healthy any time soon, businesses are cutting back on spending, and banks have been badly burnt.
All this is calculated to make even the fewer, bigger, safer banks that will dominate the landscape much more cautious.
Like Caesar’s wife, they will not only have to be above suspicion of irresponsibility but seen to be above it.
