At the British Chambers of Commerce annual conference Labour leader Ed Miliband announced that a Labour government would introduce regional banks that would stand in contrast to current "banks that like to say no". But encouraging banks to lend more isn't costless. Banking reporter Tim Wallace writes on the conflicting targets that push banks to reduce lending at present:
The Bank of England is encouraging banks to put aside extra capital to make sure they remain stable in the face of any renewed Eurozone crisis. The state-backed banks face increasingly direct, not to mention contradictory, orders from politicians to simultaneously slim down, and to rush to the aid of SMEs and households with extra credit. And on the other side of the transactions, consumers and firms have been told to deleverage, that they should stop relying on loans to finance consumption and spending, and instead pay down debts and live within their means.
Demand is a key factor, too. In the fourth quarter alone, RBS, for example, saw SME loan applications plunge by 10 per cent. Banks are certainly far from perfect – they made some terrible lending decisions in the boom years and should be pushed to clean up their act. But calling for a new splurge of lending to risky SMEs and to over-leveraged households is no way to encourage financial stability and growth in the future.