Clegg tells banks not to hoard cash

DEPUTY Prime Minister Nick Clegg will today attack banks for using balance sheet rebuilding as cover for not lending to businesses.

Mr Clegg will reject suggestions that reforms aimed at creating a more robust banking system are making it difficult for banks to lend.

Business has long complained that banks have become far more reluctant to lend since the credit crunch while the banks themselves have pointed to the need to meet new regulations and a lack of demand.

 Speaking at the Institute of Directors annual convention, Mr Clegg will argue that banks have several years to meet new rules on their capital holdings.

“My message to the banks is this: Yes, of course, get your balance sheets in order. Meet the new capital requirements. But don’t lurch to the other extreme at the expense of British business.

“Don’t unnecessarily hoard capital when businesses need loans. Don’t sit on your hands while firms are crying out for cash. And understand that getting credit to businesses is in your interests too.

“Healthy banks have diverse portfolios – lending to business for the longer-term as well as participating in the short-term money markets. And a healthy banking system needs a growing economy as much as everyone else.”

Mr Clegg will concede that demand “may be an issue” adding: “But I hear time and time again from businesses like yours that you are desperate for the loans. 

“There is no excuse for turning down solid loan applications from viable firms. And we need to ask: how much capital are banks devoting to business lending compared to their trading operations? How much are they distributing to shareholders or top executives, compared to business?”

The Deputy Prime Minister will promise Government support for non-bank business finance, including £700m from its Business Finance Partnership scheme that will be loaned to firms directly by a team of fund managers.