Why the UK struggles to locate long-term finance
In short: In the traditional economic model, households save and firms borrow through intermediaries like banks. However, the UK's financial infrastructure doesn't make it easy to find long-term funding. This structural friction raises a critical question for policymakers: do we need a dedicated Development Bank to bridge the gap?
The traditional framework of finance relies on financial intermediaries—specifically banks and pension funds—to connect household savings with firm borrowing. While this system functions for many types of lending, Jagjit Chadha notes that the specific experience of intermediation in the UK does not easily facilitate the location of long-term finance. This suggests a structural mismatch where the existing plumbing of the financial system may be ill-equipped to support extended investment horizons. This observation highlights a disconnect between theoretical models and practical market realities. It suggests that the current mechanisms for moving capital may be insufficient for specific types of investment. Consequently, the lack of accessible long-term funding remains a persistent hurdle for economic planning.
This finding is part of a wider scholarly framework regarding 'The Structure of Finance.' Between 2014 and 2018, Jagjit Chadha held the Mercers’ School Memorial Professorship of Commerce at Gresham College, dedicating his professional life to investigating the connections between macroeconomics and finance. His work often utilizes dynamic stochastic general equilibrium (DSGE) models to incorporate complex financial mechanisms, such as bank behavior, inventory, and the term structure of interest rates, into broader economic theories. Chadha previously served as the Chief Quantitative Economist at BNP Paribas, where he built tools for pricing bonds and exchange rates. He also held a chair in Money and Banking at the University of Kent starting in 2007. His academic background includes a fellowship at Clare College, Cambridge.
The implications of these structural limitations are significant for national economic policy. If the current intermediary model fails to provide accessible long-term funding, it can hinder industrial growth and infrastructure development. Chadha’s research explores these puzzles by examining the interaction between financial markets and monetary regimes, seeking to understand how the 'art and science' of monetary policy can better support a functional economic structure. His research also investigates the informational herding behavior of market participants. He has published extensively on the effects of quantitative easing on market prices. Furthermore, he has served as a specialist adviser to the House of Commons Treasury Committee.
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Sources
- Summary by Intellect · source: The Structure of Finance - Jagjit Chadha
- Also: niesr.ac.uk — Jagjit S Chadha - NIESR
- Also: Professor Jagjit Chadha OBE - The Productivity Institute
- Also: Professor Jagjit Chadha | Gresham College
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