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.
"Lending money is a business decision, not a political one."
Well said, Jeff.
I get the impression that banks are willing to lend, cautiously, to businesses who have viable plans and are investing for the future, albeit, at a price and they'll choose the best of the businesses, not all. What they're less willing to do is provide what businesses think of as short term temporary funding (eg increased overdraft facilities) because they know more about the state of the economy than most small businessmen and they can see where the cracks are in much bigger businesses. Consequently they know which big businesses are struggling and will probably avoid lending to suppliers in that sector because there is a greater risk of not getting their (our) money back.
I know that Vince wants to see our money used to support smaller British businesses when they just need some temporary support but he has already flipped his view from "not cutting too soon" to "we have to reduce the deficit". I would hate for him to have to eat his words again and realise that over extending themselves at this time could be suicidal for the banks. Or taxpayers!