Over the last year or so I have lost count of the number of times that Alistair Darling, Gordon Brown and myriad other government ministers have claimed that they are going to get banks lending to small businesses again at decent rates. Despite their numerous interventions and despite the fact that many of the banks are partially or largely owned by the taxpayer, so far the government has not been able to get them to change their approach. Darling was at it again yesterday.
Tuesday, 28 July 2009
I run my own small business but we are in the fortunate position of not needing to go to banks for finance. I shudder to think what would have happened to our business in the last 6 months if we had have needed to though. I have read so many stories about what seem like perfectly viable businesses who need temporary financial assistance either to get over a cash-flow bump or even to expand and where the banks just refuse to help or offer ridiculous and clearly profiterering rates of interest that it is now clearly desperate.
True Blue Blood published a guest post yesterday from a contributor "RussRec" whose story about trying and failing to get help with his recruitment business is all too familiar.
The thing is though that the behaviour of the banks is damaging our economy and our recovery. Every time they turn down a viable business for financial assistance or price them out of the market they are consigning more people to the dole queue and in a lot of cases it seems completely unneccessary. It is a self-reinforcing cycle where the more they delay the recovery, the longer it will be before they will feel comfortable lending to businesses at reasonable rates again.
The most annoying this is that it seems to me the pendulum is now swinging too far in the other direction. 2 years ago, banks were falling over themselves to lend to all sorts of individuals and businesses, now they will hardly lend to anyone. In both cases they were not being driven by rational motives but by following the herd, terrified of either not lending enough previously, or now lending too much.
I am not advocating that banks should be lending to unviable businesses. Of course they should not do that but from what I can see they are going way beyond excluding businesses like that with their caution.
I can understand that the government does not want to interfere with the running of the banks on a day-to-day basis but they must surely see that a quiet "gentleman's word" with those running the banks (followed by a load of spin where they pretend they have "got tough with them") has not worked on the occasions they have tried it. I am instinctively against intervention but the banks have proven themselves incapable of doing what we all (including themselves ironically) need them to do. The government has to come up with a way of changing the environment so that banks do start lending. Otherwise, what was the point in pouring the hundreds of billions of our money into the banks? They might as well have kept that money and set up their own bank to do the job for them until the recession is over.