BoE's Posen: Bankers aren't jerks, they're just not lending enough

Adam Posen, a member of the Bank of England's Monetary Policy Committee, has attacked private banks for failing to lend to Britain's small businesses, and turned up the pressure on the Treasury to ensure that hard-pressed firms are not starved of credit.

Asked in a BBC radio interview if high street banks are doing enough to support firms, Mr Posen said: "The short answer is no... They've over-reacted and are turning down all sorts of lending that could be productive."

He added: "When the banks say there's no demand that's crazy because the fees [charged by banks for loans] are going up and normally prices don't go up when demand is falling."

Mr Posen's idea of using the Government's balance sheet to create new sources of lending for small businesses was picked up by George Osborne at the Conservative Party conference last autumn, when the Chancellor promised a "credit easing" scheme.

But speaking yesterday at a TUC seminar, Mr Posen said the Government was not moving rapidly enough.

"I wouldn't be calling for more action if I though the [present] action was sufficient" he said. "The Government seemed to be interested [but] clearly between the party conferences in October and the autumn statement, the air went out of this."

He also dismissed the bankers' complaint that they are being impeded from lending by new capital requirements.

"Even if we lift capital buffers over time, they don't necessarily need to go up immediately... so [the argument of the banks] is partly an excuse" he said.

Mr Posen stressed that the credit squeeze on small firms was not solely because bankers are being "risk-averse jerks", but was due to historic structural problems in the UK financial system, among thema chronic lack ofcompetition.

"We've had 100 years where people have been complaining about the ability of the City to finance British industry" he said.

Mr Posen said more quantitative easing might prove necessary, but also suggested the UK would benefit if the international "ugly contest" over fiscal austerity were dropped.

He said: "It would be better if we got out of this least ugly contest with every country in the world trying to point to some other country as less austere than it is. Maybe if we eased off on that competition, we [the UK] wouldn't have to go so far."