Why Stephen Williams is wrong

Stephen Williams is the Lib Dem vice-chair of the Treasury select committee, and he has just weighed into the argument about RBS profits and the shortage of lending to small business.  "There is no excuse for RBS not to loan to good British companies that are struggling to get credit," he said. "We cannot simply allow banks to go back to business as usual while viable British firms are suffering.”

He might be right in this second sentence, but he is wrong in the first.  In fact, the party is heading up a blind alley with this constant hand-wringing about the failure of the UK banking oligopoly to lend to small business.

The truth of the matter - and it really is time the political world understood this - is not that our handful of banks won't lend to small business.  It is that they can't.  They are no longer structured to do so.  Their structures and attention remains focused on the speculative economy.  They have no systems capable of lending locally; they have no local infrastructure that can give them the information they need - just tickbox computerised forms that will refuse most of the deserving small enterprise projects.

We are not being failed by our banks because of their laziness.  We are being failed by them because of the structure of their sector.

Even before the 2008 crisis, just over 40 per cent of local bank lending was to property, fuelling the property bubble.  It is now urgent for our recovery that the UK banking systems is broken up, to provide us with the infrastructure we need. 

Will that happen?  The appointment of Sir John Vickers to head the inquiry, after a period in charge of the pusillanimous Office of Fair Trading, does not bode well - but constant exhortation, begging the banks to lend more, as if they could if they wanted, simply obscures the point.  It allows politicians to continue in their fantasy that the structure of UK banking could survive if only th bankers were nicer.  It won't work.