Currency Watch: Will the banks spread seasonal good will?

The Advent Calendar season is upon us and it seems amazing that 2011 is almost at an end.

And what a year it has been. Many of us are simply stunned at the pace with which the year has passed and how we will soon be thrown headlong into 2012, kicking and screaming.

For most people, myself included, the hectic last few days of 2011 will be made a little sweeter by a generic piece of chocolate from behind my advent calendar’s latest door. In a tough marketplace, it’s the little things that keep us sane.

I think that all businesses that have made it through this year should regard it as a badge of honour; especially for those SMEs who have had to cope with funding markets remaining dry.

Mervyn King and the Bank of England’s Financial Stability Report garnered a fair few headlines last Thursday, as he threw phrases like “systemic crisis” in to what was expected to be a fairly “by-the-numbers” press conference.

Anytime a central banker starts using language like that, everyone usually sits up and takes note, and that’s precisely what the press did. Cue headlines about the end being well and truly nigh.

On the question of bank stability King said that UK banks, while in a better position than those on the continent, should start to “limit distributions and give serious consideration to raising external capital in the coming months”.

Nothing wrong there, with the Governor advising banks to avoid paying whacking great big bonuses or dividends, but instead hold onto what they’ve got. The strange request came next.

The Monetary Policy Committee reiterated its advice to banks to improve the resilience of their balance sheets without reducing lending to the real economy.

This, to anyone with a semblance of common sense, seems anachronistic and impossible at best. The question that bankers will be asking is: “Do we lend, help the economy, increasing our profits and open funding markets? Do we attempt to raise funds from elsewhere, maybe at exorbitant rates given some of their fundamentals, and then lend?

“Or do we not lend and take a hammering in the press and maybe get hit with a fine, but at least be around to tell the story?”

My hope is that it will be the former; my head says it will be the latter. Advent Calendars may be the only daily sweetness we can count on for a while yet.

Jeremy Cook is chief economist at World First foreign exchange