The Bank of England’s coronavirus gamble

It’s very interesting, and important, that the Bank of England is encouraging banks to turn half a blind eye to likely coronavirus losses on loans to businesses and mortgage borrowers – in the hope that banks don’t suddenly stop lending for fear future losses will deplete their capital.

After the 2008 banking crisis, this is something I never thought I would see, but it’s probably an appropriate measure. Given the sheer number of businesses and mortgage-borrowers in trouble, the damage to the economy would be made much worse if banks stopped or cut lending for prudential reasons.

What matters is that the Bank had better be right that the economy and businesses will bounce back when we are through this Covid-19 crisis. Or the losses for banks – and by extension for us – will be mind-bogglingly big.

And of course so much hinges today on the generosity of what Chancellor Rishi Sunak offers to subsidise the incomes of the millions of employees and workers whose businesses are in the direst straits.