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| Version 7 | Version 8 |
|---|---|
| Vince Cable threatens banks over lending | Vince Cable threatens banks over lending |
| (about 1 hour later) | |
| Business Secretary Vince Cable has said the government is willing to take "further action with tax on banks" if they do not increase lending to small and medium-sized enterprises (SMEs). | Business Secretary Vince Cable has said the government is willing to take "further action with tax on banks" if they do not increase lending to small and medium-sized enterprises (SMEs). |
| Mr Cable told MPs on the Business Committee that the level of lending to SMEs was a "serious problem". | Mr Cable told MPs on the Business Committee that the level of lending to SMEs was a "serious problem". |
| Under the Project Merlin agreement, the UK's biggest banks are committed to lending £76bn in 2011 to SMEs. | Under the Project Merlin agreement, the UK's biggest banks are committed to lending £76bn in 2011 to SMEs. |
| The bosses of the four biggest banks are also giving evidence to MPs. | The bosses of the four biggest banks are also giving evidence to MPs. |
| The Treasury Committee is hearing their views on the Independent Commission on Banking's proposal to ring-fence the retail operations of a bank into distinct subsidiaries, so that these operations would be protected if a bank collapsed. | The Treasury Committee is hearing their views on the Independent Commission on Banking's proposal to ring-fence the retail operations of a bank into distinct subsidiaries, so that these operations would be protected if a bank collapsed. |
| HSBC chairman Douglas Flint and Royal Bank of Scotland chief executive Stephen Hester were divided in their opinions about this. | HSBC chairman Douglas Flint and Royal Bank of Scotland chief executive Stephen Hester were divided in their opinions about this. |
| Mr Flint told MPs he thought ring-fencing was required, but Mr Hester said: "I believe that creating a ring-fence increases some of the systemic risk and decreases some of the ability of banks to withstand the risk." | Mr Flint told MPs he thought ring-fencing was required, but Mr Hester said: "I believe that creating a ring-fence increases some of the systemic risk and decreases some of the ability of banks to withstand the risk." |
| Bob Diamond of Barclays and Antonio Horta-Osorio of Lloyds have also given evidence. | |
| In his evidence given in the morning, Mr Cable said: "The chancellor and prime minister have made it clear that if we don't get results, they have said we should take further action with tax on banks." | In his evidence given in the morning, Mr Cable said: "The chancellor and prime minister have made it clear that if we don't get results, they have said we should take further action with tax on banks." |
| Sanctions could include a tax on profits, balance sheets or bonuses, he said. | Sanctions could include a tax on profits, balance sheets or bonuses, he said. |
| But he also said it could be a problem if some banks met lending targets, while others did not. | But he also said it could be a problem if some banks met lending targets, while others did not. |
| Under Project Merlin, the amount the four biggest banks, plus Santander, agreed to lend to SMEs equates to £19bn a quarter. However, in the first three months of the year £16.8bn was lent. | Under Project Merlin, the amount the four biggest banks, plus Santander, agreed to lend to SMEs equates to £19bn a quarter. However, in the first three months of the year £16.8bn was lent. |
| Mr Cable acknowledged that while Project Merlin did not set specific quarterly targets, there was now a "catch-up element" involved. | Mr Cable acknowledged that while Project Merlin did not set specific quarterly targets, there was now a "catch-up element" involved. |
| He said there was a mixture of factors involved in why banks were not lending as much as the government wanted. | He said there was a mixture of factors involved in why banks were not lending as much as the government wanted. |
| One was the level of demand - banks say it is weak, but businesses say they are being discouraged from applying in the first place. | One was the level of demand - banks say it is weak, but businesses say they are being discouraged from applying in the first place. |
| The government's requirement that the banks hold more capital was also having an effect, he said, as banks were being more cautious in their lending. | The government's requirement that the banks hold more capital was also having an effect, he said, as banks were being more cautious in their lending. |
| He also said that banks had gradually moved away from "relationship banking", meaning that "at a time of crisis like this they don't have the infrastructure in place to assess the risk of lending to small business". | He also said that banks had gradually moved away from "relationship banking", meaning that "at a time of crisis like this they don't have the infrastructure in place to assess the risk of lending to small business". |
| Changing behaviour | Changing behaviour |
| Mr Cable said if banks did not increase SME lending, the UK's economic recovery would suffer. | Mr Cable said if banks did not increase SME lending, the UK's economic recovery would suffer. |
| "We believe there is an issue with the supply and cost of finance and it is inhibiting recovery," he said. "Certainly, if it's not dealt with, it will inhibit recovery as we move into more rapid growth." | "We believe there is an issue with the supply and cost of finance and it is inhibiting recovery," he said. "Certainly, if it's not dealt with, it will inhibit recovery as we move into more rapid growth." |
| However, he added that he had anecdotal evidence that some banks were changing their behaviour, highlighting Lloyds as taking the issue very seriously and meeting their targets. | However, he added that he had anecdotal evidence that some banks were changing their behaviour, highlighting Lloyds as taking the issue very seriously and meeting their targets. |
| "Some banks are trying harder than others," he said, also singling out Santander for its efforts. | "Some banks are trying harder than others," he said, also singling out Santander for its efforts. |
| Big banks, big risk? | Big banks, big risk? |
| RBS, along with Lloyds, was bailed out by the government during the financial crisis, and is now 84%-owned by the government. | RBS, along with Lloyds, was bailed out by the government during the financial crisis, and is now 84%-owned by the government. |
| Mr Hester said that some taxpayers' money may have been used to pay bonuses. | Mr Hester said that some taxpayers' money may have been used to pay bonuses. |
| "It could have fed through to bonuses," he said. "It is entirely possible." | "It could have fed through to bonuses," he said. "It is entirely possible." |
| Both RBS and Lloyds were told by the European Commission to sell hundreds of branches, 318 and 600 respectively, but the Independent Commission on Banking wants the government to force Lloyds to sell off even more branches. | Both RBS and Lloyds were told by the European Commission to sell hundreds of branches, 318 and 600 respectively, but the Independent Commission on Banking wants the government to force Lloyds to sell off even more branches. |
| Lloyds chief executive, Mr Horta-Osorio, said the 600 that he was selling would prove big enough to compete and it was not necessary to sell more: " Our board strongly believes this (extra branch sales) is against the interests of our shareholders, including taxpayers... there is overwhelming evidence this would be a serious and effective challenger." | |
| Asked about the breaking up of big banks, Mr Hester said size did not matter. | Asked about the breaking up of big banks, Mr Hester said size did not matter. |
| A big bank did not pose a systemic risk, but a bank that took big risks did, he said. | A big bank did not pose a systemic risk, but a bank that took big risks did, he said. |
| HSBC's Mr Flint added: "I actually don't believe it would make a great deal of difference to competition. I don't believe for the consumer it would necessarily make so much of a difference." | HSBC's Mr Flint added: "I actually don't believe it would make a great deal of difference to competition. I don't believe for the consumer it would necessarily make so much of a difference." |