Financing in the US and UK recoveries

The importance of bank credit in the financing of the private sector in the main developed economies has been reduced as a consequence of the financial crisis. In the literature, there remain open questions regarding the role of credit over the business cycle. Even so, many authors conclude that, although the recovery of bank credit after a recession is not a necessary condition for recovery, the absence of credit may reduce its strength. Indeed, the current crisis has shown that bank credit has important implications for the severity of recessions and the subsequent recovery. The weakness of bank credit has had different consequences for different agents. In the case of firms it has coincided with a process of disintermediation, so that their access to the capital markets as an alternative source of financing has increased.3 However, this channel is not easily accessible to households or small and medium-sized enterprises (SMEs), whose external financing continues to depend mainly on banks. This paper analyses the growth of bank lending to households and businesses in the United States and in the United Kingdom, the economies that were first affected by the financial crisis. The weight of bank loans in the financing of business differs between these two countries and different measures have been taken in response to the decline in lending to the private sector. In both countries, lending to businesses fell, owing to the tightening of credit standards and the contraction in demand entailed by the slowdown in activity. The funding difficulties experienced by SMEs, in particular, led to the adoption of measures designed to facilitate their access to credit. In the United States a programme was approved in 2010 to support small financial institutions, which specialise in lending to small businesses, while in the United Kingdom there have been various initiatives, including the 2012 Funding for Lending Scheme. The rest of this article briefly reviews the recent developments in bank lending in these two countries, before describing in detail the problems in each country and the main measures introduced. Finally, conclusions are drawn, with a particular focus on the challenges that remain.