UK banks told: lend more or lose bonuses

Bankers are to be forced to lend to businesses or risk losing their bonuses under plans to be outlined by Vince Cable, the Business Secretary.

Jonathan Russell and Andrew Porter
Telegraph [UK]
25 July 2010

He will propose a “carrot and stick” approach to ensuring that banks maintain lending to struggling enterprises.

The plans will be in one of two green papers on the banks and financial services being published by the Coalition today. The second paper, from the Treasury, will outline measures to strengthen regulation of the banking sector.

The measures are part of the Government’s attempt to ensure that the country does not have to endure another credit crunch amid nervousness in the markets.

But it is the green paper from Mr Cable’s Department for Business that could prove most controversial. It is clear that the Business Secretary has run out of patience with banks. “I don’t think the banks get it,” he said yesterday. “We are very worried about their behaviour. They are not acting in the national interest.

“At the moment we are talking to them in an amicable way and we are monitoring them, but if this doesn’t work there are combinations of carrots and sticks that can be employed.

“What we would question is whether banks should be paying out dividends and bonuses when that money could be used to … support small business lending.”
Mr Cable will threaten to impose a new code on all banks rather than opt for a voluntary one applying only to those banks majority-owned by the state.

A source close to the Business Secretary added: “The pressure will be kept up on bonuses. It is important that the banks do not think this is an issue that has gone away.”

The article, with video, continues at the Telegraph.

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