Cable: 'Banks must do more to help businesses'

But Lib Dem Treasury spokesman insists the party is not 'anti-banker'

Lloyds and Royal Bank of Scotland came under fresh fire yesterday for failing to meet commitments to lend to small businesses and "endangering economic recovery".

Speaking as the two prepare to unveil another year of multi-billion pound losses Liberal Democrat Treasury spokesman Vince Cable accused them of "denying the facts" and blaming government and regulators for failing to lend to businesses by forcing banks to hold more capital.

While Mr Cable – who was outlining the Liberal Democrat policy on banks – insisted that his party was not "anti -bank", he said of RBS and Lloyds: "They insist that they are falling over backwards to help their business customers despite all the mass of evidence to the contrary."

"Most small and medium-sized businesses, however, never indulged in the overleveraged excesses seen in the domestic property market or by major commercial property developers. The problem with the banks' argument is that there is a fallacy of composition."

Mr Cable added: "Restrictions on lending to sound companies by all banks is preventing a sustained economic recovery and thereby compounding the risk of growing bad debts about which banks are concerned. Behaviour which appears sensible to individual banks is disastrous when pursued collectively. And, several leading banks are nationalised and semi-nationalised and, for them, reserve capital is largely irrelevant; they cannot go bust."

Mr Cable said the two banks were

"crucial to the economy" and lending agreements with the Government must be better enforced and better policed. He said an element of compulsion to force more lending was "unavoidable".

"Bank managers are reported to be playing all kinds of games to tick the boxes without engaging seriously with smaller commercial clients.

"There are far too many reports for comfort that rich private clients are having their arms twisted to borrow while genuine entrepreneurs are given a wide berth. On the anniversaries of the RBS and Lloyds lending agreements, I challenge Alistair Darling to give a full, public account of what has happened under these legally binding agreements."

Mr Cable said his policy would still be to see the break-up of the banks although he speak favourably of some banks – such as HSBC – and some mutual institutions – such as Nationwide.

"The Liberal Democrats are committed to splitting up the banks. But we have an open mind on the mechanisms involved. The Chancellor has argued that separation is technically difficult if not impossible. The big banks argue the opposite case and point out that they have achieved a separation voluntarily. The essential point is that within a realistic time frame the British taxpayer has to be totally disengaged from the risks involved in global investment banking."

He said Lloyds and RBS should be broken up before returning to public ownership.

Banking reform: 'Customers would suffer if banks were broken up' - Santander chief

British consumers would suffer if the banks were broken up, the chief executive of Banco Santander told an influential committee of MPs yesterday.

Alfredo Saenz also rounded on banks that were bailed out by the taxpayer. He said: "I can't refrain from saying, as a traditional banker, it is extremely hard to accept that a big bank can be bailed out." He added: "Regulators must ensure fairness to banks that have best weathered the crisis."

Mr Saenz said higher prices would be the inevitable consequence of a break-up of large banking groups such as his own.

"It drives efficiency. We are the most efficient bank in all the territories in which we operate. That means we can pass on the savings to consumers and offer services such as commission-free banks accounts ," he told MPs.

However, he said that while Santander is Europe's second-biggest bank, operating across several countries, it was effectively a traditional "narrow" bank which takes deposits and lends money. Santander does not have an investment-banking operation.

Mr Saenz's company owns Abbey, Alliance & Leicester and the deposit business of Bradford & Bingley in the UK. It is also interested in buying Williams & Glyn, which is being spun out of Royal Bank of Scotland.

Mr Saenz was praised by MPs. He said Santander supported living wills and operating through national subsidiaries rather than an international branch network. Mr Saenz said subsidiaries could be protected in the event of a collapse at the centre of a bank.