Published by: Joe Lenane | Published Date: 18th July 2012
My advice to the Government: Put down the banking carrot and take up the banking stick.
Today Secretary of State for Business, Innovation and Skills, Rt Hon Dr Vince Cable reported to the BIS Select Committee and conceded that banks were still not lending sufficiently to small businesses, but that it was not for want of trying.
Successive Government’s have indeed been providing strong incentives to banks to lend to small businesses for decades – including underwriting high proportions of loans to reduce risk – yet banks continue to insist on security, which in practice acts to prohibit lending and renders such Government policies impotent and ineffectual.
If the Government is serious about securing loans for viable small businesses, it cannot continue to pursue this same ‘bank incentivisation’ policy expecting a different outcome.
I know of no other body that would negotiate in such a weak manner. Banks fail because their investment banking arms assume far too much risk, gambling with the money afforded from their commercial, ‘High Street’ divisions. Government responds by propping them up, which has merely facilitated more of the same outcome. Investment bankers continue to see little to no change in their exorbitant bonuses and remuneration packages and no ‘high risk’ culture change is adopted; and their High Street divisions perversely compensate by behaving in an overly risk-averse manner meaning they fail to provide the services needed by small businesses to get the cogs of the economy going again.
There have been many analysts calling for Government to separate these two banking branches and I have seen little in the way of a compelling argument as to why this would be a bad idea. After all, if investment bankers suddenly have to raise the money with which they gamble then they will find it far harder than small businesses are currently finding it to get their mitts on any cash at all.
If you consider that London shares the accolade of the world’s largest financial sector (alongside New York) then it follows that our Government is acutely responsible for ensuring that the system is fit for purpose – otherwise our whole economy will collapse in a cloud of fools gold.
One must ask how successive banking regulatory bodies have missed all the signs that our investment banking system has amassed and masked such colossal losses.
Part of the answer is that if you are savvy and mathematically minded, you go work for a bank – and certainly not our very poorly paid and poorly regarded regulatory bodies.
It must come as no surprise to anyone then that these very bright, very well remunerated and very highly motivated bankers have developed such overly complex banking systems which function to obfuscate where the money is going in our markets; and run circles around those that finished nearer to the bottom of their math’s class and went into regulation instead.
The Government needs to reign in the risk-taking culture of investment banks; make commercial divisions less risk-averse – and for Pete’s sake start paying regulators enough money so that the sector has a chance of attracting some of the Poker Stars that otherwise go play for Team Bank.
Government concedes time and time again that if the UK is to rebuild our economy then small businesses must thrive. Chief Executive of the London Stock Exchange, Xavier Rolet, put it perfectly when he wrote in City AM that to revive a weak economy small firms must be able to become tomorrow’s giants.
"It is these often family-owned ventures – the small and medium enterprises (SME) – which provide the most immediately credible means of helping revive the UK economy.
Consider the numbers. It is obviously far more realistic for each of the 4.8m SMEs in the UK to create an additional job than it is for each of the FTSE 100 to generate another 48,000 posts apiece – that is highly unlikely to happen anytime soon.
We must look to the government to oil the wheels of policy changes to expedite this process."