THE Governor of the bank of England yesterday joined the Chancellor of the Exchequer and business organisations in demanding banks free up lending to struggling businesses.
Only one major UK bank, the Royal Bank of Scotland, has officially pledged to secure small company overdrafts.
However, the pressure on other banks to follow RBS increased as Mervyn King, the Bank's Governor told the Commons Treasury select commi
ttee yesterday that getting bank lending back to normal remained the most pressing issue facing UK economic policymakers.
King said that direct government action, including further recapitalisations, might be needed to restart bank lending.
He told MPs: "We may need to put further capital in if necessary and, as last resort, we can't rule our measures where the government have to intervene directly to make sure that lending continues."
In his Pre-Budget statement to the House of Commons on Monday, Alistair Darling, the Chancellor, praised RBS's overdraft pledge, and said it would "give security and reassurance to up to one million small businesses".
He said his office would closely monitor banks' "commitment to treat business customers fairly and decently" and that this would be enforced by "whatever action is necessary to make sure this happens".
Yesterday, other business organisations echoed that view. David Lonsdale, assistant direct of CBI Scotland, said: "The majority of firms are reporting that stringent new conditions have been imposed on them by lenders, and that a third of firms report a reduction or withdrawal of lines of credit. A further third said applications for new credit had been refused."
Stuart Mackinnon, spokesman for the Federation of Small Businesses in Scotland, called for government to force banks to lend. "All of the banks, especially those bailed out with public cash, need to recognise that as key economic actors they have a duty to act responsibly.
"If they don't, it's up to government to modify their behaviour by whatever means is necessary."
David Watt of the Institute of Directors said bank funding was more important for businesses than measures outlined in the Chancellor's Pre-Budget report.
"The government is going to have to pressurise the bank to start to release the money given to them," he added.
RBS unveiled a "shot in the arm" for small companies committing to a freeze on overdraft pricing – as long as the company's risk does not rise.
The pledge affects its customers with turnover under £1 million, with the understanding overdrafts make up only a small part of overall corporate lending.
Yesterday the banks which have not moved to copy RBS defended their positions. A spokesman for Lloyds TSB defended the banks' right to "lend responsibly".
"We are not slackening our lending criteria. This would be the worse possible time to do so. We always lend responsibly we will carry on doing that.
"It is our prudent and cautious approach to risk lending that will get us through. You won't see anything crazy from the Lloyds Banking Group and that continues to be the case."
"It would be the wrong thing to lend to businesses that can't afford it. You are getting them into more trouble."
Other large banks contacted by The Scotsman said it is "business as usual" and claimed they saw no need to adjust existing lending policies.
The full article contains 558 words and appears in The Scotsman newspaper.
