Editorial: Half an answer to sclerotic banks

Vince Cable's plans for a government-backed investment bank have much to recommend them

Share
Related Topics

Given that Britain is the only country in the G8 without one, Vince Cable's plans for a government-backed investment bank have much to recommend them. Complaints from smaller or more niche British companies struggling to raise money date back decades, and efforts to address them are long overdue.

Part of the trouble is structural: to establish the risk associated with making a loan, a bank must assess both the business and its market – an operation which swiftly becomes too costly when the amount of money requested is relatively small. The steady decline in competition in the banking sector has only exacerbated such difficulties. But now there is another – acute – squeeze, with banks forced to take fewer risks and hold on to more of their capital following the financial crisis.

To resolve the problem, the Government is to put up £1bn of public money, which could make for a total lending capacity of around £10bn. The bank will neither make loans directly nor undercut commercial rates, so as not to skew the market. But it will aim to reach those companies and sectors not well served by the current system.

So far, so good – particularly since early hints suggested the new "bank" might only be a repository of the series of rather limp growth-promoting schemes from the Government so far.

It would be as well not to expect too much, however. Even at £10bn, the new bank is not big enough to have much impact on the economy's current lacklustre state. Nor will it be up and running soon enough.

Equally, although a state-backed lender may do something for confidence, it cannot obviate the need to pay down debt, which is dragging on economic growth, or offset the danger of meltdown in the eurozone, the primary export market for so many British businesses.

Mr Cable's bank is a sound long-term development. But in the short term, demand from wary businesses will remain as much of a problem as supply from wary lenders has been.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Mobile Developer (.NET / C# / Jason / Jquery / SOA)

£40000 - £65000 per annum + bonus + benefits + OT: Ampersand Consulting LLP: M...

Humanities Teacher - Greater Manchester

£22800 - £33600 per annum: Randstad Education Manchester Secondary: The JobAt ...

Design Technology Teacher

£22800 - £33600 per annum: Randstad Education Manchester Secondary: Calling al...

Foundation Teacher

£100 - £125 per day: Randstad Education Chelmsford: EYFS Teachers - East Essex...

Day In a Page

Read Next
Critics of Fiona Woolf say she should step down amid accusations of an establishment cover-up  

Fiona Woolf resignation: As soon as she became the story, she had to leave

James Ashton
 

Letters: Electorate should be given choice on drugs policy

Independent Voices
Bryan Adams' heartstopping images of wounded British soldiers to go on show at Somerset House

Bryan Adams' images of wounded soldiers

Taken over the course of four years, Adams' portraits are an astonishing document of the aftermath of war
The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

Paul Scholes column

Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities