Ruth Mitchell

Cable throws down the gauntlet to banks

Business Secretary Vince Cable yesterday said the government is willing to take “further action with tax on banks” if they do not increase lending to small and medium-sized enterprises (SMEs).

Mr Cable told MPs on the Business Committee that the level of lending to SMEs was a “serious problem”.

Under the Project Merlin agreement, the UK’s biggest banks are committed to lending £76bn in 2011 to SMEs.

The bosses of the four biggest banks have also given evidence to MPs.

The Treasury Committee heard their views on the Independent Commission on Banking’s proposal to ring-fence the retail operations of a bank into distinct subsidiaries, so that these operations would be protected if a bank collapsed.

HSBC chairman Douglas Flint and Royal Bank of Scotland chief executive Stephen Hester were divided in their opinions about this.

Mr Flint told MPs he thought ring-fencing was required, but Mr Hester said: “I believe that creating a ring-fence increases some of the systemic risk and decreases some of the ability of banks to withstand the risk.”

As well as disagreement over ring-fencing, there were opposing views over the value to the mega banks of the implicit guarantee from taxpayers that they will be bailed out in a crisis.

RBS, along with Lloyds, was bailed out by the government during the financial crisis, and is now 84%-owned by the government.

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