Chancellor George Osborne and business secretary Vince Cable recently demanded assurances from the UK’s best business bank accounts that business loans will start to flow again.
The UK’s biggest and best banks are preparing to conduct exhaustive research on the subject, with over a thousand small businesses, to try to answer the demands of the ministers as to know why bank lending has deteriorated during the recession.
The business secretary and chancellor sought assurances today from senior bank employees from HSBC, RBS, Barclays, Standard Chartered, and Lloyds Banking Group that they were prepared to increase the available supply of credit once the economic downturn ends and demand for business loans returns to pre-recession levels.
Prior to their initial meeting with Osborne and Cable the banks had discussed a detailed research plan. Additionally they formulated an idea to create support for business loans by implementing a fund that would span the banking industry.
These banks are facing pressure to explain exactly why new business loans are being granted slower than existing ones are being repaid, which has led to much frustration on the part of the government; they have been relying on on rapid private sector growth to help offset the cuts made to the private sector. There has been no agreement settled upon among the questioned banks as yet.
While Osborne and Cable both confirmed the meeting had taken place, all of the banks involved declined to comment upon it. In a joint statement, the two government officials stated that, as an integral part of an ongoing discussion on the availability of credit and regulatory reform, they met with the CEOs of Britain’s biggest banks. They both commented that the meeting was a constructive one, helping to inform the fothcoming government green paper focusing on business finance.
This coalition agreement telegraphs the intention to heighten business loan goals set by the Labour party for the bailed-out banks RBS and Lloyds, which were focused on what was referred to as “gross” lending. This new government states that it desires to change the focus to what it calls a “net” one, taking note of repaid loans in addition to newly granted ones, though details on this new focus have not yet been released .
The forthcoming green paper is expected to have further details. It is also expected to consider the viability of using equity investment, in addition to loans, could fund small businesses.
The banks are concerned with the incipient changes to the regulatory landscape of the UK; they are seeking to be clarified on how the Bank of England’s new powers will be transferred from the Financial Services Authority.