Over the past six months, and thanks to the Joseph Rowntree Reform Trust Ltd, and others, I’ve immersed myself in the issue of local banks.
It can be a frustrating business, because politicians often prefer the convenience of people to blame (greedy bankers) rather than solving the basic problem (no local lending infrastructure).
But recent figures confirm the basic problem and it is time the nation began to face facts to tackle it. Despite the recovery, the total stock of money lent to SMEs – over 99 per cent of the businesses in the economy – is still falling.
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.
Now, this isn’t the fault of the banks. It is a logical response to the new Basel regulations and to global competition.
But that doesn’t mean we need do nothing. Quite the reverse, we need to decide whether small business lending is critical to the economy. If it is, it must be done by someone and the banks are no longer geared up to do it. Nor does their business model support it.
That decision is the first shift that is required, and nothing else will happen until it does.
The second is this. 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.
It isn’t just going to appear magically, via the hidden hand. Of the 30 new banks now awaiting approval from the regulator, only one plans to provide current accounts.
There is no way we can rebalance the economy without a local infrastructure in the UK. That is the big shift that is required – but the politicians have to move first.