Britain's leading banks will come under further pressure to step up lending, especially to small businesses, when they meet the Chancellor, Alistair Darling, and the Business Secretary, Lord Mandelson, today.
Mr Darling promised yesterday to push the banks on lending, as he told MPs on the Treasury Select Committee that a wider range of government guarantees to underwrite loans to companies and mortgages may also be implemented, as ministers make a determined effort to unfreeze the credit markets. "It's one of the range of things we are looking at," he said. He added that "we need to do much more" to restore lending to the economy.
Although he praised recent moves by HSBC and RBS, the banks which have pledged to increase lending and pass on interest rate cuts, he made plain his determination to ensure that the quantity of credit from the banking system as a whole is restored to 2007 levels.
Mr Darling described as "speculation" reports that the Treasury is preparing plans for a programme of "quantitative easing". This would mean that the Government is prepared to "print money" in order to stimulate the economy, an approach that has increasingly discussed by the US president-elect Barack Obama's advisers. The Treasury could, for example, buy "toxic debt" from the banks. However, Mr Darling hinted that any such move would have to wait until the base rate was closer to zero.
Mr Darling told MPs: "I'm prepared to do more to free up lending. One of the reasons we established the lending panel, which has its meeting tomorrow, where I and Lord Mandelson will meet the chief executives of the biggest banks as well as Nationwide, is because we believe there is more the banks can do, particularly to small- and medium-sized enterprises.
"Banks have to understand we put very substantial sums of public money in to support them, and they in turn have to play their part. They have to go very much further in terms of supporting companies and individuals."
The Government recently pledged a further £7bn in loan guarantees to business, including the Small Business Fund, the Export Guarantee Scheme and funds from the European Investment Bank. A further recapitalisation of the banks is also being considered. "I am prepared to look at a number of things that would make it more likely that banks will lend," said Mr Darling.
"However, from the banks' point of view they have to understand that with billions of pounds of taxpayers' money, either invested in shares, or being made available as a guarantee, the general public and businesses are looking for something in return. But we've also got to make sure that is passed through."
The Prime Minister was earlier pressed on the progress the Government is making on the issue of lending. The Leader of the Opposition, David Cameron, asked Gordon Brown whether the policy recapitalising the banks to get them to lend had "failed".
Mr Brown promised further announcements of assistance for small businesses "in the next few days".
However, further government attacks on banks' lending policies are likely to be received badly in the City. Leading bankers have said the demand is incompatible with government demands to increase capital strength and rein in more risky lending policies.Reuse content