Mervyn King, the Governor of the Bank of England, takes his choice of words as seriously as he takes his cricket; a sport which, as he reveals in next month's Wisden magazine, taught him all about economic incentives.
So when the Governor used the word "heart-breaking" to describe the appalling treatment being meted out by the banks to small businesses, and the lack of lending to them, we should sit up.
Now, King doesn't have much time for bankers at the best of times. But when he tells us that he's seen correspondence between businessmen and their bankers, many of which have had good relationships for decades, showing how the banks are tearing up existing agreements or increasing the terms of loans, it must surely be time for the politicians to translate their bank-bashing rhetoric into action. Customers moaning about shoddy service from their bankers has become de rigueur, but it's quite another kettle of fish when the country's most powerful central banker bears witness to the treatment.
It's tricky to tell if the banks are telling the truth about whether they are meeting demand. The banks say they are, small business says they are not, and all the evidence from them, and their trade bodies, suggests they are right. According to the Department for Business, Innovation and Skills, lending is still in freefall. Loans to the corporate sector have fallen by more than 30 per cent since July 2007 – just before the real credit-crunch kicked in – and since January last year, have fallen another £60bn. Over the past 10 months, net lending to business has been negative. In April, net lending to business contracted by £400m, albeit slightly less than the previous month, and May figures were weak too.
There isn't just one funding gap in the UK but three; start-ups, small firms and medium-sized companies – and each has different problems.
Banks rarely lend to start-ups – they need secured assets – so it's up to the three Fs to back them; friends, family and fools, and that's unlikely to change. What is needed, though, are better incentives for the three Fs to invest more – an extension of the Enterprise Investment Scheme, for example. More pertinent is finding ways to fund the marzipan layer; that's where the real problems lie. The paradox is that if there were ever a time that private companies need to expand, it's now; if the coalition swings the axe on the public sector the way it has promised, the private sector will need to grow fast enough to create at least a million new jobs. Understandably perhaps, the banks have become risk-averse; like former alcoholics, they have drunk so much from the punch-bowl over the past decade, they don't want to touch the stuff now.
So what's to be done? Vince Cable, the Business Secretary, and George Osborne, the Chancellor, made a good start with the Green Paper on business finance last week, which looked at options such as changing targets for the state-owned banks from gross lending to net; the creation of regional exchanges and other ways of introducing new equity; and incentives to create the next generation of business angels.
But this will take time; as will encouraging new banks, and we don't have that luxury.
Like King, Cable doesn't like the banks. Both have warned the state-controlled Lloyds and RBS that bonuses and dividends should not be paid so long as small companies are being starved of loans. They are right. But they should stop the bank-bashing in public; it doesn't inspire confidence for anyone, certainly not foreign banks which may be hoping to open up here.
Instead, they should turn the screws on them privately, and the Government, as the biggest shareholder, should simply vote against any bonus and dividend payments for at least a year (and ignore the tenuous arguments that talent will leave) until there is evidence the banks are taking the right risks again, and treating customers with respect. Hopefully, the fear of King swinging his bat when he takes charge of the banks in the autumn, will make them see sense. They shouldn't doubt for a moment that he intends to do anything less than hit them for six.
Why Hayward will find Siberia a much warmer place to be than the States
Tony Hayward's departure from the main BP board to join its Russian joint venture, TNK-BP, looks more intriguing by the day. It turns out that TNK is interested in the sale of one of BP's prime assets, the $1bn worth of fields in Venezuela, and Hayward has indicated the Russian venture might be interested in other BP assets. One of the first trips the new chief executive, the American Bob Dudley, who takes over formally in October, and Hayward are planning is to Moscow. Hayward is due to be nominated shortly as a non-executive director to the TNK board but, despite past frictions when Dudley was running it, this will be a breeze as relations between him and the four oligarchs, who own the 50 per cent balance, are said to be warm.
Top of the agenda will be chat about the joint venture, which plans to list next year, something both sides have been talking about for some time, as well as expansion strategy. Russia supplies BP with more oil than any other country, about 25 per cent of the oil giant's total supplies come from the Western Siberian fields, so it's a vital relationship, and it's why giving Hayward such a hot seat must be rewarding for him after the ghastly abuse he's suffered from the Americans. With the oil spill now apparently under control, the political storm whipped up by the US politicians and their lobbyists on Capitol Hill ahead of mid-term elections is looking out of proportion. Hayward's only crime was to insist on taking the lead himself in the US, when he should have brought in his own heavyweight lobbyists, and his chairman, Carl-Henric Svanberg, much earlier. It will be months before the investigation into the spill is complete, and if, as The New York Times reports, the rig operator Transocean is shown to be culpable by having turned off the rig alarm, then it may well be that the Americans find themselves with a slick of egg on their faces. The big question is whether Svanberg can survive. For now, the BP board is supporting him, but the Swede is still very much on probation.