Don’t blame banks for low demand

VINCE Cable was grand-standing on his favourite topic yesterday: the ills of British banks. But there was more sound than sense in his warning that lenders had better “meet the commitments they agreed” – or else.

That’s because the five Merlin banks have so far done exactly as promised. They have collectively set aside £190bn in capital to lend to business, an average of £47.5bn a quarter.

But now this commitment to supply credit is being judged against a measure of demand for credit: in the last quarter, British businesses signed up for £47.3bn of credit, £200m short of the Merlin figure. But it was not banks that “missed” the Merlin target; it was the businesses.

The £47.3bn figure is not a measure of the capital banks had on hand for lending; it is a measure of the amount businesses signed up to use at the prices available. And only some of that money, which includes services like extended overdraft facilities and credit lines agreed but not yet drawn down, has so far been used.

In order to pander to Cable and his pals, banks would either have to cut the price of credit at a time when capital is more expensive than ever, or lend to dodgy borrowers.

Even small business groups highlighted yesterday that any lending problem is due to limited industry competition, not unwilling banks. As Barclays chief Bob Diamond says: “We like to lend. It’s what we do.”

So politicians need to make up their minds: do they want more lending or sound lending?