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February 6, 2013 12:16 am
Banks will on Wednesday be told to hand over to the government a branch-by-branch breakdown of their business lending or face new regulation, as part of a fresh drive to get credit flowing to small companies.
Vince Cable, business secretary, will claim there has been remorseless decline in SME lending “with no sign of a turning point” and that it is time for banks to come clean on what is going wrong.
Mr Cable and Michael Fallon, Tory business minister, have written to the banks demanding much more transparency. “In the absence of co-operation, we shall seek a regulatory solution,” Mr Cable will say.
The Liberal Democrat minister claims it is “rather pathetic” that banks say they cannot find creditworthy business customers, arguing that part of the problem is that many banks have “deskilled their commercial banking business”.
He says the best bankers have gone to the City or Canary Wharf or to the more exciting world of marketing new retail products, leading to a “downward spiral” in business banking.
To identify the worst performers, Mr Cable has asked the banks to provide data on business lending, disaggregated to institution, branch and possibly even to postcode level.
Banks have previously said they did not have such information but Mr Cable does not believe them. “I’d be very surprised and very disappointed if this information was not already available each week in spreadsheet form on every CEO’s desk,” he will say.
The threat of regulation if banks fail to comply is a sign of growing desperation in the government that credit supplies to small companies are still holding back recovery, in spite of numerous initiatives to tackle the problem.
Mr Cable will also say in a speech at Bloomberg that he wants the Bank of England to see whether the government’s Funding for Lending scheme can be better targeted to help SMEs.
The business secretary will not suggest quotas for the BoE, but will ask it to come up with ways to help small companies under the scheme. “We must end this credit bottleneck as a matter of urgency.”
Mr Cable’s banking speech will confirm his support for George Osborne’s approach to reform in the financial sector, including threatening banks with full separation if they do not respect the new “retail ringfence” to protect high street operations.
Although the business secretary once favoured immediate full separation of the banks he agreed to back the Vickers ringfence model, which protected retail banking from riskier investment banking operations.
Mr Cable and Mr Osborne, the chancellor, agreed last week to “electrify” the ringfence with new sanctions to deter banks from trying to get around the rules.
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