The really appears to be a blindness among frontline politicians about the banks, even many of the Lib Dem ones - though Vince Cable appears to be pretty clear-sighted about it. If so, he is in a tiny minority.
It isn't that some of them somehow think the banks are effective generators of economic success. Nobody could think that. Or even that the big bankers are right that there is no demand for business lending. Nearly everybody recognises that is nonsense.
No, the big politicians' fantasy is why there is a problem. They maintain themselves in the delusion that somehow this is laziness or greed, just bad behaviour by the banks that can be corrected by a stiff talking-to, or by some lending scheme which allows them to profit from actually doing what they were originally designed to do. It is part of the politicians' more common fantasy that they have the leverage if only they knew how to wield it.
None of this is true. Banks are not lending to small and medium-sized businesses in the UK because they are no longer set up to do so. They have no local infrastructure capable of making decisions, which can over-ride their risk software - which simply tells them 'no'.
But until the frontline politicians can grasp this, nothing can be done. Other countries have small local banks with that capability; we don't - why don't they grasp the disadvantage we have? - and haven't done for more than a generation.
Why was UK industry so pathetically badly invested - and why is it still? Because the banks lack the infrastructure to lend.
Why do we have to wait for a recovery led by Tesco and their cronies unleashing their war chests, when other countries have entrepreneurs leading the recovery? Because the banks lack the infrastructure to lend.
Why is the Co-op Bank in trouble after their Britannia Building Society takeover? Because they lack the infrastructure to lend (except on property).
And the latest figures confirm it. Bank lending to business is down, despite the subsidies from the government's Funding for Lending scheme. Lending is up on property (yes, it is the British disease again - when in doubt press the housing bubble button). It is worst with the banks in public ownership, which I suppose demonstrates that the Treasury rates preparation for privatisation higher than playing an effective role in the recovery.
I even heard of a small business on the radio this evening which has been forced to go to online lenders for the money they need to expand (and have accepted a loan at 13 per cent APR).
Why? Because the banks lack the infrastructure to lend.
Small business lending can't be done by computer. It requires local knowledge. Other countries have that infrastructure. How come we are in the third year of the coalition, and yet there is still little prospect that we are going to organise it for the UK too?
Where there's a will, there's a way - but is there a will?
ReplyDeleteIf the government really wanted more investment in small business they could require banks to make, say, 50% of their lending not on property or secured on property. They would then have to lend to business - and relearn how to do it PDQ.