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Government to force bank lending

26 Jul 10

Cable piles on the pressure to increase cash-flow to small business, as banks fail to act “in the national interest”

Days after the UK banks passed the EU’s “stress test” – intended to ensure they could survive another hypothetical economic crisis – Business Secretary Vince Cable has renewed pressure for them to boost lending to small firms.

In an interview with the Sunday Times, Cable accused the banks of “not acting in the national interest”, suggesting a “carrot and stick” approach to financial incentives may be necessary.

The interview will have made uncomfortable breakfast reading for bank bosses, who await this afternoon’s publication of Cable’s joint consultation paper with the Treasury, outlining options for boosting business funding.

RBS and Lloyds, part-nationalised during the worst of the credit crunch, are already required to provide a certain level of lending to businesses, with failure punished by penalties on executive pay. The proposals could require the other banks to sign up to a similar arrangement.

However, the British Banker’s Association was quick to defend its members’ position, stating they had lent £6.8 billion in June.

"Demand for lending is currently low, as businesses are not keen to take on additional borrowing when the economic outcome is uncertain," added a BBA spokesperson.

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Mercia Sky July 2010 (link opens in new window)Advertisement