Dynamic provisioning

In its recent bi-annual stability report, the Bank of England has called for measures to improve the financial stability of banks. One of these measures is called 'dynamic provisioning' which involves building up 'reserves against future losses in the good times, which they could then draw on when times were tough'. What a good idea! This used to be called 'prudence'. Admittedly, in the past banks kept these reserves hidden in the form of secret reserves and there is everything to be said for keeping them transparent.

The FT, in another article about the same report, says the Bank blames the crisis on 'shareholders' for failing to supervise their companies and 'marking to market'. As a shareholder in Lloyds TSB I shall chastise myself severely for failing to attend their AGM and point out to them the error of their ways. I'm sure that would have made all the difference. But it is interesting that the Bank explicitly cites marking to market as one of the causes of the crunch.

We are beginning to need a new name for the 'credit crunch', which was fine when the problem seemed to one confined to interbank lending. Something more indicative of the scale of the problem would now seem more appropriate: something like 'Global Financial Meltdown'.