I have been wondering whether the banking argument has got a bit stuck because politicians prefer to keep the bankers in the Box of Blame – rather than actually looking at the problem and trying to solve it.
So here are three facts which point to a very specific problem, which is not to do with the inherent evils of banking – or anything remotely like that – but to the market conditions where they find themselves.
Exhibit #1. Only about ten per cent of bank lending goes on real, productive investments. The rest tends to go on property speculation or is lent in various ways among themselves.
That is the way the global market works. Global banks are under market constraints which means they have to go for the most profitable ventures. It isn’t their fault: it is the rules of the game set for them.
Exhibit #2. Lending to small and medium-sized businesses is still falling in the UK, despite the recovery. In every other nation in Europe except Hungary, small business lending has returned to pre-2008 levels. Here the rate of the reduction has slowed down, but it is still going down.
Again, this isn’t the fault of the banks. It is a logical response to the new Basel regulations and the lack of a local banking infrastructure in the UK, capable of accepting local deposits and using them as the basis for supporting local enterprise.
Exhibit #3. Of the 30 new banks now awaiting approval from the regulator, only one plans to provide current accounts. Local banks do not appear by magic.
It isn’t the fault of the bankers that they can no longer serve the SME market. The problem for politicians is not whose fault it is – it is whether or not the UK economy needs SME lending.
If it does, then we need an infrastructure capable of providing it, as other countries have.
The big bankers get very considerable privileges for their role in the economy, personally and professionally. If their banks are no longer able to lend in that market, then they must create an infrastructure that can.
Why has small business lending recovered in other European countries? Because they have a local banking infrastructure, and an infrastructure that takes deposits rather than just lending other people’s money.
There is no way we can rebalance the economy without one in the UK. That is the big shift that is required – but the politicians have to move first.