I’ve been talking to property people. One – who runs a very sound business given the environment – tells me of getting a large insurance payment and asking his bank which account to put it into. They suggest an account on which he has a large overdraft facility. He innocently pops it in there. They promptly cancel his overdraft, leaving him instantly cashless.
Another tells me of having good loans and bad loans. On the bad he is barely covering the interest, but the banks don’t appear bothered. They only want to talk if he can’t cover the interest. On the good they are showing a little more interest: if the project is generating any cash they want it to pay down debt immediately.
Then I get an email from a reader. She runs a small electrical engineering company and she just can’t get any support from her bank. After three years of successful trading they allowed her a company credit card with a £250 limit. Heavy lobbying got it raised to £1,000. But that is it. She listens, she says, to an awful lot of blah about how the banks are doing all they can to support small businesses. But every time she asks for anything she gets told that “it’s out of my remit”; “that’s a different sector of the bank”; “we have no control over those decisions”; “I can’t pass on so-and-so’s contact information, but will pass on your message”.
What’s going on? they all ask.
The answer is simple. We are asking our banks to do two things. We are insisting that they rebuild their capital bases and that they become less dependent on wholesale financing – both of which necessarily involve them at some point contracting the credit they offer. Yet at the same time we are demanding that they lend more to would-be home owners and to small businesses. It is utterly impossible for them to do both. So they are doing the first bit and not talking about it much. And they are not doing the second bit, but talking about doing it a lot instead.
If we want that to change – i.e. we want banks to chuck out more and easier loans – we have to change the demands we make of them. Instead of asking them to hold more capital, we need to ask them to hold less. The only way to do that is to say no to Basel III – a new set of regulations being discussed that would increase the amount and change the type of capital banks have to hold – and possibly a watering down of Basel I and II which govern the current capital requirements. Both these things are highly unlikely – Basel III is likely to see a good few delays, but George Osborne is all for the Basels in general – so it looks like small-business owners are just going to have to get used to banks that say no (quietly).