Government puts banks on notice regarding practises

The government cautioned banks recently that it if the current dearth of business loans continues to threaten the recovery of the UK economy, it will be stepping in to take matters into its own hands. Concurrently it offered several possible solutions to small business bank accounts who have been experiencing difficulty in obtaining financial support during the banking crisis.

Business secretary Vince Cable cautioned banks could be soon to experience a governmental “carrot-and-stick” approach to their lending practises, as was stated in a green paper recently published by the government concerning recovery of the private sector through bank finance.  Cable warned that if banks continued to refuse to grant business loans, or persisted in charging high interest rates or paying exorbitant bonuses to bank executives, the government’s “stick” would be a hefty tax on any profits the banks may generate.

Secretary Cable spoke shortly after Mark Hoban, City minsiter, delineated the new regulations for the City, which upended the previous regime that had been enacted by Labour.  Hoban stated that the previous regime was riddled with contradictions and was inherently weak.

Hoban, who told a mixed audience of bankers and business leaders at the London Stock Exchange that regulation reform was not to be considered a “silver bullet,” said that the government’s green paper aimed to address the financing problem.

A joint document between chancellor George Osborne and secretary Cable, the green paper provides a framework for returning financial transactions to an active status not through just lending practises but additionally through the encouragement of investing in equity, breathing new life into securitisation markets, and utilising the government on a guarantor on business loans in order to let small business owners share the responsibility for their loans.

The paper states that, while a solution that involved the private sector is a distinct possibility the government also is ready to act in an intervening manner in order to prevent any risks that may materialise in regards to the recovery of the economy.

While the government has been enacting several cuts to its public sector programs, experts agree that any encouragement it can offer to the development of small businesses will help stimulate quicker economic growth.   Stock exchange CEO Xavier Rolet pointed out recently on how important small business growth is in job creation, which currently runs at a rate of approximately one employment position for each of the roughly 4.8m small and medium sized businesses in the UK.

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