Darling threatens banks over loan policy

Ministers have warned Britain's banks to increase the supply of affordable loans to businesses or face the threat of a competition probe if evidence of market failure emerges.

Alistair Darling, chancellor, has ordered ministers to hold a series of one-to-one meetings with bank chiefs through August to establish whether margins and fees have risen excessively on loans to small and medium-sized companies.

The bosses of seven big banks were yesterday told that ministers would leave "no stone unturned" and could present their research to the Office of Fair Trading if there was a suspicion that competition was not working effectively.

"It is very important that each and every bank knows that there is someone looking over their shoulder," Mr Darling said after the Treasury meeting. "I want to make sure that we have a competitive banking system in this country."

But Philip Hammond, shadow chief secretary, said Mr Darling was "asleep on the job and the public will take his synthetic anger with a pinch of salt".

The chancellor's aides said he did not yet have any evidence of anti-competitive behaviour. To encourage more competition, Mr Darling wants to cut the two years it takes to obtain a banking licence. Paul Myners, City minister, and Shriti Vadera, small business minister, have been charged with going through banks' lending policies over the next few weeks.

The Treasury claims that in 2007, only 2 per cent of SMEs paid margins on their loans of more than 9 per cent; in 2009 that had risen to almost a third.

The Bank of England's July lending survey found a negative flow of lending to business in May. The banks attributed higher margins and fees to higher longer-term funding costs and credit risk. Angela Knight, BBA chief executive, said: "I don't think anyone would expect banks to lend savers' money to businesses that aren't going to survive."

The banks attending the "lending panel" meeting were HSBC, Barclays, Lloyds, RBS, Santander, Nationwide and Standard Chartered.

One large bank called the meeting "constructive" and said there had been "no hectoring" by the government over lending. "The amount of loan applications being approved has only fallen marginally," said another.

Separately, the watchdog that oversees the UK's code of corporate governance signalled the prospect of sweeping reforms being extended to all companies after Sir David Walker's review of banking governance. A review by the Financial Reporting Council includes proposals that could force companies to put chairmen up for annual re-election and give investors a greater say on pay.

Darling plays 'hard ball', Page 3 FRC report, Page 14