BoE man blasts the banks in lending row
Bank of England Monetary Policy Committee member Adam Posen slammed private banks yesterday for failing to lend to Britain's small businesses and turned up the pressure on the Treasury to ensure hard-pressed firms are not starved of credit.
Asked in a BBC interview whether banks are doing enough to support firms Mr Posen said: "No. They've over-reacted and are turning down lending that could be productive.
"When the banks say there's no demand, that's crazy because the fees are going up and normally prices don't go up when demand is falling".
Mr Posen's idea of using the Government's balance sheet to create new sources of lending for small businesses was picked up by George Osborne at the Conservative Party conference last autumn when the Chancellor promised a "credit easing" scheme. But yesterday Mr Posen said the Government was not moving rapidly enough.
"I wouldn't be calling for more action if I thought the (present) action was sufficient" he said. "The Government seemed to be interested (but) clearly between the party conferences in October and the autumn statement, the air went out of this."
Mr Posen also dismissed the bankers' complaint that they are being impeded from lending by new capital requirements. "Even if we lift capital buffers over time, they don't necessarily need to go up immediately...so that (the argument of the banks) is partly an excuse" he said.
He also stressed the credit squeeze on small firms was not solely because bankers are being "risk-averse jerks", but was due to structural problems in the UK financial system, among them a chronic lack of competition.
"We've had 100 years where people have been complaining about the ability of the City to finance British industry" he said.
Mr Posen, who has been the strongest advocate of monetary stimulus on the MPC, said that more QE might prove necessary, but also suggested that the UK would benefit if the international "ugly contest" over fiscal austerity were dropped.
He said: "It would be better if we got out of this least ugly contest with every country in the world trying to point to some other country as less austere than it is. Maybe if we eased off on that, we wouldn't have to go so far".