Banks Furious at Public Pronouncement That They Are Not Lending

Banks and its executives are infuriated about the pronouncement that Bank of England Governor Mervyn King in his appearance before the House of Commons Treasury Select Committee two weeks ago that banks in the UK treat their customers quite selectively.  He stand by his allegation as he believes the numbers showing a decline or lack of credit growth is enough to make one conclude that there is truth to this.

The Senior bankers are at the same time vocal about their opinion on the pronouncement that all are based on hearsay – insinuating the point that the important principle of public policy of asking those in power to base their public pronouncements on evidence and not tittle-tattle should at all times be observed.  They have actually pleaded with the BOE that they be given specific examples of credit-worthy companies whom they have refused financed.  But just as their stand is more supported, they got nothing concrete as evidence thrown against them.  Even the BOE itself has not made any attempt to conduct a detailed analysis of small-company lending conditions. 

Further scrutiny on the issue would only point to the Department for Business, Innovation and Skills chart showing that lending to smaller companies is rising and its own credit conditions survey with the data series on small company lending showing only data going back to the fourth quarter of last year.  It actually shows lending conditions picking up.  There is evidence provided by the banks last week as all major high-street lenders provided data showing net lending to small and medium sized companies have in fact risen over the past half year even if in some cases the rise is but marginal. 

Banks justifies this allegation aside from being “just hearsay” as being in the position to face one of the biggest obstacle that keep them from increasing their lending to this market as due to the lack of demand from creditworthy customers.  This is only dismissed as “an excuse that is not good enough”.  For banks, they believe that Mr. King has yet several explaining to do why he is so vexed by the lack of credit growth. 

Given the previous evidences of past experienced recessions world over, it would make true the fact that bank lending falling during the early stages of a recovery is but normal.  This is due to the fact that most companies fund their growth from their own cash resources.  This recession shouldn’t be any different then, right?  If it be true that the banks are hiding more than they should from the public’s eyes, then Mr. King ought to come up with evidences to back up his allegation prior his public pronouncements.  This at least ought to be courtesy given to the banks, they say.