A decade ago, I was working as a reporter in Tokyo when I was asked to investigate the impact of Japanese-style quantitative easing. Back then, the Bank of Japan was pouring gazillions of yen into the money markets and politicians were angrily exhorting the Japanese banks to lend.
Indeed, at one point, the Tokyo government even created quotas, which stipulated that banks should make a certain level of loans to worthy small enterprises to combat a pernicious credit crunch.
But, when I examined what the Japanese banks were actually doing, the results were almost comical. In public the banks claimed they were lending to small enterprises; in reality some were only meeting the targets by lending to subsidiaries of Toyota.
Faced with a political order to lend, in other words, Japanese banks were ducking round the rules – and the liquidity was notably not ending up where politicians (or central bankers) had hoped.
Sound familiar? I am increasingly tempted to think so. In the last six months, European and US central banks have poured dizzying sums into the money markets and politicians have put pressure on the banks to lend. Last week, for example, Alistair Darling, UK chancellor declared his readiness to “get tough” with banks that were failing to lend. On Thursday, the Bank of England triggered surprise by announcing an expansion of its quantitative easing scheme.
FT.com / Columnists / GillianTett - The liquidity pipes remain clogged
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