West Dunbartonshire MP John McFall has called on the big banks to start lending to small businesses – or public pressure for nationalisation will increase.
He added that while the £37 billion recapitalisation announced by the Government in October was most welcome, it might not be enough to save them in the financial storm now raging.
Mr McFall said: “The recapitalisation was certainly enough to save the banks from collapse—a considerable shield in the storm that, with a crisis of confidence hanging over them, could soon have swamped them. It has given us some breathing space.
“However, it was only a first step. Despite having been pulled back from the brink, the banks appear reluctant to launch their sizeable recapitalisation lifeboat and start lending again to households and businesses.
“It would seem that they are instead navel gazing and looking warily at each other instead of concentrating on their customers, many of whom are still in peril on a sea of uncertainty.”
John McFall said the big question is whether the banks will use the Government’s £37 billion as intended.
He added there was little to no money available for small businesses – “There are 4.7 million small and medium size businesses in the UK, employing 13.5 million people—almost 60 per cent of the private-sector workforce. These are very large numbers. They need loans to help them sustain these important jobs.”
Mr McFall said the banks had “great reservoirs of money ready and waiting to be lent out” and should be actively lending instead of sitting on their hands.
He added: “Governments on both sides of the Atlantic have called on them to resume lending, and criticism has been directed to the banks that they are not shaping up to the task at hand.”
The MP said that in the current crisis, banks should not be hoarding capital, but should be able to utilise their reserves to ensure that money is available for lending.
There was a clear incentive for them to do this— “the £37bn funding to be provided by the Treasury is expensive, costing the banks 12% per year”.
He added; “Banks may be diverting much of their income towards repaying this aid, rather than expanding their loan books.
“In my view, this must stop: banks may have to get used to the idea of being part-nationalised for a longer time.
“If they don’t then one answer would be for the State to step in, again, and guarantee mortgages and other retail loans
“If the perception gains hold that the banks are continuing to refuse to lend, then a website should be set up for small and medium businesses to report the fact that they have been refused a loan and record their dismay about the way they have been treated.
Mr McFall said that if the banks fail to comply, there could be a “nuclear option”.
He added: “If the banks do not play ball, and will not resume lending, then the demand for full-scale nationalisation may well grow.
“This strategy was successful in Norway, Sweden and Finland between 1991 and 1993. With major banks under public control, the governments would be in a position to instruct them to raise their levels of lending.
“We may not want to go that far. But the banks do have a responsibility to society which they must fulfil. They should acknowledge that responsibility and start lending - now.”