What about some transparency on state aid given to the State?
Matthew Lesh discusses “level playing field”, “state aid”, domestic subsidies and transparency: “Relaxed subsidies rules are a free rein to pick winners without transparency” City AM, March 16, 2022.
In 1988, risk weighted bank capital requirements were introduced. Basel I, decreed weights of 0% the government, 40% residential mortgages and 100% citizens. Though modified by the introduction of more risk categories in 2004’s Basel II, the discrimination in the access to bank credit still remains.
That regulation translates into banks being allowed to leverage their capital, basically their equity, much more when lending to the State, than to the citizens. That means banks can much easily earn desired risk adjusted returns on equity when lending to the State than when lending to the citizens. That translates into a subsidy of government borrowings.
Don’t just take my word for it. Paul Volcker, in his 2018 autobiography “Keeping at it”, wrote: “Assets for which bank capital requirements were nonexistent, were what had most political support: sovereign credits. A simple ‘leverage ratio’ discouraged holdings of low-return government securities"
The scary truth is that we confront an utterly creative and non-transparent financial statism/communism of monstrous proportions, which impedes the markets to signal what the undistorted interest rate on governments debts should be.
Are current ultra-low interest rates on government debt something weird? Of course not: a) require banks to hold the same capital against all assets (as it used to be); b) stop central banks from purchasing with their QE government debt; c) take away liquidity requirements that force banks to hold government debt; d) stop ordering pension funds and insurers to buy “safe” government debt irrespective of the price; and you would see government debt traded at much higher rates.
The difference between the interest rates governments would pay on their debts in absence of all above mentioned favors, and the current low interests is, de facto, a well camouflaged debt, retained before the holders of those debts could earn it.
Who has approved these subsidies that are not recognized much less measured? What if the owner of a small British businesses makes the case to the Competition Appeal Tribunal, that he believes an unfair subsidy to a competitor in the access to bank credit, has been provided by the Prudential Regulation Authority (PRA)?
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