Banks defy Brown call to free up credit
Loans for business increasingly scarce and outlook bleak, says reportJill Treanor and David Hencke The Guardian, Saturday 3 January 2009 Article historyBritain's banks are defying the government by starving businesses and households of loans and warning that credit will become even scarcer in the first three months of this year.
A Bank of England survey found that in spite of Gordon Brown's call for more loans, lenders had further reduced the amount of credit available in the last three months of 2008 and warned that they planned to continue to pare back. Banks and building societies are being deterred from lending by the worsening economic outlook and the fall in house prices and other assets against which loans are secured.
The dire picture painted by the quarterly survey was reinforced by separate data yesterday showing a record low for new mortgages being granted and figures from Halifax, the UK's biggest mortgage lender, that showed house prices in December were down 16% on a year earlier.
Labour backbench MPs seized on the figures to put more pressure on Brown and Alistair Darling to take action to kick-start lending in the face of what economists warn could be a deep and painful recession. Interest rates are already at a 58-year low and are expected to fall even further from their current 2% after Thursday's meeting of the Bank's monetary policy committee.
Despite a £37bn bail-out package to buy shares in Royal Bank of Scotland and the soon-to-be-merged Lloyds TSB and HBOS, there are concerns that lenders are not heeding government demands to keep competitively priced loans available.
The government insisted it would "take whatever action is necessary to ensure the availability of new lending". Options presented to the Treasury are thought to include injecting more cash into the economy and buying banks' "toxic" assets.
"As the chancellor has said, he is prepared to look at further measures to make it more likely that banks will lend, but banks have to understand that with billions of pounds of taxpayers' money invested, or being made available as a guarantee, the public and businesses are looking for something in return," a Treasury spokesman said.
Major banks claimed that they were heeding the government's demands to maintain lending. They put the blame on the departure of Icelandic and Irish banks from the market for the reduction in credit reported by the Bank of England.
"The banks and Nationwide are approving one-third more loans as 12 months earlier but specialist lenders and small building societies have virtually disappeared from the market," the British Bankers' Association said.
That is unlikely to ease pressure on Brown from his own backbenchers. Nick Raynsford, who represents the views of many moderate Labour MPs, called on Brown to give "a touch on the tiller towards more prudent lending in the new year".
John McFall, Labour chairman of the Commons Treasury committee, said: "While I can see that individual banks might think it prudent to cut back on lending, it would be collective madness for their country if they all decide to do this."
The chief executives of the banks are expected to be called before the committee in February to face further questioning on why they have taken so little action to help business and creditworthy individuals.
The Conservative leadership blamed the prime minister yesterday for the figures, saying they proved government action had failed.