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‘Warning shot’ fired at banks refusing to lend
Nicholas Cecil, Chief Political Correspondent21 Nov 2008
BANKS facing fury from ministers over their refusal to boost lending were today warned to act before the “lid is blown off”.
Labour MP John McFall, chairman of the Commons Treasury select committee, stressed he was “firing a warning shot” on his and other people's behalf.
Mr McFall, who is seen as close to both Prime Minister Gordon Brown and Chancellor Alistair Darling, even floated the idea that all banks could be nationalised, as happened in Sweden in the Nineties, if they refused to increase the flow of loans to firms and mortgages to avoid a deeper and more prolonged recession.
He told BBC Radio 4's Today programme: “I'm firing a warning shot for the Financial Services Authority, banks and others. There is a real frustration building up here. We better get something done before the lid is blown off.”
Mr McFall spoke out just hours after it was reported that Mr Darling is considering a “nuclear option” of tougher laws to make banks increase lending.
The Treasury today played down the likelihood of new laws. A source said: “There is no suggestion that legislation is imminent.” But ministers are angry that despite a £500 billion rescue plan funded by taxpayers, lenders are still not supplying businesses with loans.
Even firms with “perfectly good track records” are being denied funding, according to a government source. The Chancellor is “increasingly exasperated by the bank's assurances they are helping small businesses, when they obviously are not”, the source said.
“We are not at the point of introducing regulations but he is not averse to going down that route. There is a lot of thinking going on in Whitehall about how the banks can be made to live up to what many would say is a moral obligation.”
The banks had made a commitment to return lending to 2007 levels as part of the rescue deal and would be expected to honour that pledge.
In the pre-Budget report on Monday, Mr Darling may announce tighter lending rules and moves to rein in profits.
Small business leaders say he could appoint a new “enforcer” for the financial sector to oversee bank lending or introduce a limit on the interest charged on loans to firms.
Shadow chancellor George Osborne has raised the prospect of the Tories backing the state in playing a greater role in banking by supporting direct loans to firms. He favours moves to encourage the Bank of England's monetary policy committee to cut interest rates. But he also signalled that he may back “big, radical, activist steps”.
He accused Mr Brown of planning a “tax bombshell” after Britain pulls out of a recession to pay off huge debt, with many forecasters predicting that annual public borrowing will soar towards £120 billion over the next two years.
Reader views (12)
Oh Darling you are so masterful!
- Roger Slade, Winchester, Hampshire, England, 21/11/2008 16:07
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Keep the pressure on them - Gordon. We all benefit from your tough talking
- Keith Price, Luton, England, 21/11/2008 15:44
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Oh yeah and whats Darling going to do? Double the "B"ankers pension and bonus then stamp his feet. I wonder where you'll be working once voted out of office! Doe's city or bank come to mind!!!! Every felt like you're being mugged people!!!!
- Mike, London, 21/11/2008 14:31
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Can the ministers also force the Banks to reduce there
CHARGES too.
- Mr S.Port, London, 21/11/2008 14:04
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The banks attitude is absolutely disgraceful.The BBR at 3% and probably going down soon, Libor 4.12% and also probably decreasing and yet nothing but recapitalsation and profiteering at the taxpayers expense.Also I would l ask all the Banks Chairmen to economically and morally justify,given the above and the dire situation we are all in,the huge increases in Credit Card charges such as 26%+ for cash withdrawals and anything from 18%-32% on normal purchases.As a committed Capitalist I SAY NATIONALISE THEM!!!!
- Stuart, london uk, 21/11/2008 12:57
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What about those businesses which are privately funded and do not want to borrow money. Rather than shore up the bank's coffers how about reducing business rates and corporation tax for small businesses. That will be far more beneficial than getting the banks to lend.
- Dannyp, egham, 21/11/2008 11:50
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The banks have become bad enough at managing risk and lending criteria, can anyone imagine the absolute mess this hapless, incompetent bunch of socialist would make of the job if they nationalised the banks. South America and Russia spring to mind as comparisons. There would be nothing for industry and hard working people, and everything for the work shy, those who could classify themselves as some sort of minority or place an ism after their way of life. Role on the election, so that the country can have a say in how McBroon and his rabble are actually doing, rather than listening to spin, deceit, lies and soundbites.
- Pip, Croydon Uk, 21/11/2008 11:44
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I think the warning shots should be fired at those who have reneged on the conditions of existing loans. In many cases it will be the tax-payer who is hung out to dry over the sloppy management of indebtedness by the banks as encouraged by the Labour Government because they thought it increased production and commercial activity.
- Robert El-Cid,, Hull, East Yorks.,, 21/11/2008 11:43
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I don't think any of us will be holding our breath.
- L.Taubler, London / UK, 21/11/2008 11:15
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The last thing anyone wants to do at this moment in time is borrow more.Mr Darling may think he is being clever.But the truth is the economic termoil he and Gordon Brown have created has made every sensible person very cautious.
- Dave Smith, Croydon, 21/11/2008 11:12
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So the banks made poor risk management decisions and overlent which created this mess in the first place. Now the politicians wish them to increase risk by returning to previous lending levels. You couldn't make it up.
- Les Clark, Harpenden, UK, 21/11/2008 10:37
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Gordon Brown is having a good recession. So is John McFall. He stands apart for his willingness to persist in his questioning, challenging the assumptions and rationalisations of the bankers and their coterie of captive regulators. "Why aren't the banks lending?" is his simple question, despite re-capitalisation and state inter-bank loan guarantees.
- Blackstone Coke, London, 21/11/2008 10:12
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