Appearing before the House of Commons Treasury select committee, Mr King praised the £20bn government stimulus package but warned the “single most pressing challenge” was to break the logjam in lending.
Well he's certainly right on the second part of his analysis. However, he needs to look a little closer to home, and the activities which the Bank of England plays a part in regulating, before calling for more government action.
RBS has attracted a lot of praise for apparently telling its customers that its lending policies and overdraft approval mechanisms remain unchanged. Indeed, I am told it sent a letter out to its branches last week making this clear. What did not get so much facility was a follow up letter the next day effectively making any new lending virtually impossible.
All the banks are indulging in a process of deleveraging the like of which we have never seen before. They are withdrawing from the risk market completely and relying on existing lending to make profits. If banks refuse to lend to companies with proven track records these companies run the risk of going under. If that starts to happen there will be a domino effect. So many people will lose their jobs that any amount of fiscal stimulus will have no effect whatsoever. Unemployed people cannot boost economic activity.
So if there is one thing the government really ought to be doing, it should address this issue with the banks as a matter of urgency. We were told this had happened last week, but their practices on new lending have not altered at all - in fact, in some cases lending has become far more stringent.
In tomorrow's debate, I hope the Conservatives will really push hard on this point.