'How to get banks lending to small businesses?' was the question dominating the Treasury select committee's grilling of bank bosses on Wednesday and is also on the mind of the chancellor, who used his conference speech last month to promise a new set of measures to get money flowing. He used the phrase "credit easing" (CE) and described it as "another form of monetary easing".
The expectation is that George Osborne will use next week's autumn statement to provide a bit more clarity about what this CE might look like – but it's also thought that a lot of work is still under way about how to get this scheme going.
One idea put forward was for the banks to put all their small business lending into a separate subsidiary, or special purpose vehicle (SPV), that could have some sort of guarantee from the government – AAA-rated, of course. That vehicle would then be able to borrow money more easily on the markets.
The aim would be to reduce the cost of borrowing for banks, which, theoretically, should in turn reduce the cost of loans to small businesses, which argue that they are being charged more to borrow than bigger businesses.
The latest Bank of England survey of agents – its eyes and ears up and down the country – reports that credit terms for small businesses are indeed tightening.
But the idea of using an SPV-style arrangement now seems to be receding. Other ideas on the table include setting up a separate fund, similar to the European Investment Bank, which could help direct lending to firms.
No decision has yet been taken, but Osborne will not want the Treasury to end up guaranteeing non-performing loans which then hinder his deficit reduction programme.
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