Lib Dems: Getting banks lending (South Leicestershire Liberal Democrats)

South Leicestershire Liberal Democrats <cathy.m.bailey@btinternet.com>

Lib Dems: Getting banks lending

November 19, 2008 2:58 PM
Originally published by UK Liberal Democrats

The Government bank bail out isn't working. Despite billions being pumped into the banking sector and the Government taking large stakes in Britain's major banks, viable businesses are continuing to go under as banks pull lending from them.

Although the bail out has ensured that no further British banks have collapsed, the banks are reneging on the deal that was struck with the Government. If they continue to hoard capital, refusing to lend to viable business and individuals, we are doomed to head into an ever deeper recession. In the last three months total secured lending by banks to individuals and housing associations fell by £22.6bn. That is the largest 3 month fall since the Bank of England started collecting data on this in 1993.

Just under half of small businesses say it has been harder to gain access to finance in the last year.

Despite the falling Bank of England base rate, the rate charged by banks to loan customers has risen in the past 12 months, by an average of 1.24%.

The Government, as a majority shareholder in three of the UK's major banks and the effective guarantor of all the others, must use its position to insist that banks lend at the levels they agreed to as part of the bank bail out plan. This means Government directors on the boards of part-nationalised banks must take an active role to ensure that banks lend to viable businesses.

The Government must also now develop a plan B to be put in place if current measures prove to be insufficient to help good businesses through the recession.

A plan B would also ensure that the banks realise that they cannot hold the Government to ransom and if they fail to perform the job of lending themselves, this will be done for them. The Government should investigate: Removing bad assets from banks' balance sheets to help restore confidence to the markets. These assets could then be run by a 'bad bank' created by the Government and if possible sold when market conditions are more favourable. Creating a system of direct lending, with SMEs being made a priority. There are several possible ways this could be done: Through the setting up of an entirely new bank, with government backing, whose remit is to supply affordable credit at prudent levels Extending the powers of the Post Office to offer lending services making use of its considerable branch network Allowing local councils to lend, although issues of expertise would have to be addressed Using one or both of the two fully nationalised banks to offer affordable lending

Under any circumstance direct lending should only be seen as a temporary measure. The longer-term priority must be to ensure that the banks are put on a stronger footing and regulated in such a way that they can resume prudent lending to small businesses and individuals.