David Prosser: The banks are lending as much as they can, but it is not enough


Outlook How do we square the insistence of the banks that they are lending to deserving small and medium-sized businesses with the complaints from those very same enterprises that they are being starved of credit? Mervyn King, the Governor of the Bank of England, answered that question brutally in evidence to the Treasury Select Committee last week. The banks' treatment of businesses was "heartbreaking", he said, which rather implies he doesn't believe what they say.

Lloyds, yesterday's bank in the spotlight, rejects the criticisms of those who say it is not playing its part in supporting the economic recovery, and published a long list of statistics to demonstrate just how much support it is offering businesses. Eight in 10 applications for credit are accepted, lending to business totalled £23.7bn in the first half, £5bn more than last year, and 60,000 new small-business accounts have already been opened in 2010.

Doubtless, all these figures are true. They do not take account, however, of the businesses subtly advised not even to bother applying for credit, or the enterprises which suddenly discover a long-standing overdraft arrangement has been pared back (a common occurrence, which contributes to the fact that net lending is so much lower than gross lending). Yes, demand for credit is lower than it has been in the past, with some businesses anxious to strengthen their balance sheets in the face of economic uncertainty. But there are just too many complaints about credit for them all to be dismissed as anecdotal evidence or whinges from businesses that aren't creditworthy.

This is not to single Lloyds out. All of the banks face the same balance-sheet constraints on their lending. Moreover, the endless list of banks that have pulled out of the market to lend money to British businesses since the financial crisis – a string of foreign banks, all the building societies, many specialist intermediaries, and so on – has left too big a hole for the remaining players to fill.

Worse, the prognosis for the years ahead is not a happy one. The taxpayers' support the banks have had, via the credit guarantee scheme and the special liquidity scheme, must be repaid by the end of 2012. Other funding is coming up for rollover too.

Another crunch is coming in other words. It may or may not be really serious. Lloyds, for one, appears to be making good progress on its funding, but it will certainly be a continuing constraint on the banks' ability to offer further advances.

There isn't an easy answer to these problems. For all the posturing of George Osborne, he cannot force the banks to lend more and doing so would not necessarily be desirable given that we want them to continue improving their capital and liquidity. Even the bonus question is a distraction: yet more payments to fat-cat bankers may be distasteful, but the value of the hand-outs does not scratch the surface of the lending shortfall.

Mervyn King said last week that more competition would help. He is right, of course, but where will that competition come from? Look at Santander's deal yesterday to snap up those 318 branches that the European Commission ordered Royal Bank of Scotland to sell. Every other potential bidder pulled out well before deadline day for offers for the network, hardly the sort of competition the Commission hoped to stimulate by ordering the RBS sell-off.

That deal is another reminder that for all the talk of new entrants coming soon to the banking sector in Britain, precious few have arrived. Aldermore, the new business-focused bank, is one exception, while Metro Bank, in the consumer space, launched last week. That's it. It looks as if the Governor's heart isn't going to be fixed anytime soon.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Attenborough with the primates
tvWhy BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
News
people
News
Campbell: ‘Sometimes you have to be economical with the truth’
newsFormer spin doctor says MPs should study tactics of leading sports figures like José Mourinho
News
news
ebooks
ebooksA special investigation by Andy McSmith
Voices
Lance Corporal Joshua Leakey VC
voicesBeware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Life and Style
Alexander McQueen's AW 2009/10 collection during Paris Fashion Week
fashionMeet the collaborators who helped create the late designer’s notorious spectacles
Sport
football
News
i100
News
Perry says: 'Psychiatrists give help because they need help. You would not be working in mental health if you didn't have a curiosity about how the mind works.'
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003
Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

Our woman in Beijing builds a new relationship

Britain's first female ambassador to China intends to forge strong links with growing economic power
Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

Courage is rare. True humility is even rarer

Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

Alexander McQueen's astonishing vision

Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

Dinner through the decades

A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

Philippa Perry interview

The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

Bill Granger's Indonesian stir-fry recipes

Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?