The business secretary wants to put £1bn of taxpayers’ money into the new institution, which will then borrow up to another £9bn on the capital markets, giving it a total of £10bn to use to help small firms.
It will be operated at arm’s length from the government and instead of making credit risk decisions itself, will operate through banks and other financial institutions.
Cable has recently indicated he would seek to help SMEs in the aerospace and advanced manufacturing sectors, though the details of this new bank’s operations are still to be fully worked out.
“For decades British industry has lacked the sort of diverse, long-term finance that is quite normal elsewhere. We need a British business bank with a clean balance sheet and a mandate to expand lending rapidly and we are now going to get it,” he said.
However the new bank must lend on commercial terms to avoid violating EU state aid rules which stop the government giving banks subsidies.