Not the modest interventions to try to stimulate lending, but the huge subsidies to bank borrowing implied by the state guarantee to prevent banks failing (discussed in various writings by Andrew Haldane), which allows them to borrow from private markets at low cost. Simon Wren Lewis writes about how these came to pass in his blog ‘Mainly Macro’, speculating that it was about bankers lobbying politicians.
But why do politicians give in? Another speculation to add to Simon’s: these subsidies translate into fat profits for banks, which translate into tax revenues now. These revenues can be handed out to constituents now to buy votes now. The liabilities taken on (the costs of a future bail-out) are not realised now. They come as and when a financial crisis is realised. Most likely, the taxes, and the constriction on pork-barrel spending plans, that come with a crisis, will hit some future government, a long way beyond the planning horizon of politicians focused on the next election. That’s why governments are content with the subsidy, because they aren’t paying for it. On the contrary, they share in the spoils.
Something aggravating the problem is the international competition between tax jurisdictions for banks’ profit (and tax revenue) cyphoning machines. The Basel Accords were attempts to solve both problems: regulating banks to make the realisation of crisis-related liabilities less likely, with the cost being lower profits (and tax revenues), and by agreement eliminating international competition. However, some might see these Accords as highlighting that the problem is still there. The fierceness of the competition between governments, and the difficulty for each of them in forgoing the goodies, makes it hard to strike an agreement that does any more than make a dent in the problem.