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Wednesday, April 25, 2012

Putting pressure on the banks

This morning's Independent picks up on an initiative from Nick Clegg to break the deadlock that appears to exist between the banks and businesses regarding finance.

They say that the Deputy Prime Minister has accused the banking sector of sitting on its hands over lending as firms continue to complain they cannot access vital finance. He says that the Government plans to drive lending by opening up the financial sector to make it more competitive and diverse:

He said: "My message to the banks is this: Yes, of course, get your balance sheets in order.

"Meet the new capital requirements. But don't lurch to the other extreme at the expense of British business.

"Don't unnecessarily hoard capital when businesses need loans. Don't sit on your hands while firms are crying out for cash. And understand that getting credit to businesses is in your interests too."

Combined net lending by Britain's top five banks shrank every quarter last year despite the Government's Project Merlin agreement committing them to easing lending, particularly for small businesses.

Mr Clegg said ministers cannot "march into the banks and start taking their individual lending decisions for them" but they can "exert pressure".

He added: "We need to break open the market here in the UK, with more competition within the sector as well as more alternative sources of finance, outside of it.

"The coalition is going to invest directly in non-bank finance as part of our £1.2 billion Business Finance Partnership; £700 million will be invested through up to seven fund managers who will lend directly to British firms. There will be additional investment from the private sector with our share eventually returned to government.

"That still leaves half a billion, £100 million of which will be invested in banking alternatives for SMEs. And, if we see quick take-off, I will certainly want us to invest the remainder as quickly as we can.

"Investments will be made over the coming months, to precisely the kinds of schemes I've described and I'm issuing a call to all of you today: tell us your ideal way to bypass the banks to unlock new channels of capital. How can we help rewire money to the small business world?

This is very welcome but the Government really need to get on with it.
Has anyone quantified the scale of the lending required? It seems strange that many companies are hourding cash and not investing due to a lack of confidence in the economy, whilst at the same time there is an apparent massive demand for credit. Could it just be the usual "poor risk" businesses which are complaining about the banks. These companies wouldn't be able to obtain credit even in good times.
The government has to figure out how to rebuild confidence in our economy before investment and growth return. Afraid it will take a long time.
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