It seems that the coalition’s Business Secretary, Vince Cable, has lost all patience with the banks. He is due to unveil green paper that will impose a ‘carrot and stick’ regime on the banks to ensure they lend to the businesses that need it.

In a report in the Telegraph the Business Secretary said “I don’t think the banks get it, …. We are very worried about their behaviour. They are not acting in the national interest. …. At the moment we are talking to them in an amicable way and we are monitoring them, but if this doesn’t work there are combinations of carrots and sticks that can be employed. … What we would question is whether banks should be paying out dividends and bonuses when that money could be used to … support small business lending.”

Vince Cable looks like he is prepared to impose a code on the publicly owned banks rather than letting them self regulate over the matter. It may even mean tying lending criteria into the banks’ bonus structures.

No wonder the banks are doing everything within their power to buy themselves back out of the government’s pocket. Forcing these banks to lend may mean they end up forking out money to businesses that no-one else will touch. It could also act as a big drag factor on them as they try to grow their way out of public ownership.

Lending money is a business decision, not a political one. Over the last decade or more many lenders got the business decisions wrong. But instead of letting the markets deal with it, politics intervened and the errant ‘too big to fail’ lenders ended up getting off scot free. Now it looks like one hand of politics will intervene again to re-kickstart riskier lending whilst the other hand slaps them for not having sufficient prudence and capital reserves.

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