Cable adopts 'carrot and stick' approach to banks

Fighting talk from the business secretary, as his patience with the banks wears thin.

Last Updated: 22 Sep 2010

Never one to miss a banker-bashing opportunity, ‘Saint’ Vince Cable has been at it again: ‘They are not acting in the national interest,’ he told The Sunday Times. As a result, he has just published what the Lib Dems are calling a ‘very green’ green paper on the financial sector, the aim of which will be to force banks to lend more cash to small businesses. The business secretary’s suggestions will include a handful of new measures such as the reintroduction of regional stock exchanges, more government loan guarantees, and various actions to create more liquidity in the banking system. And if that doesn’t work, he’s threatening to introduce ‘carrot and stick’ measures, linking bankers’ ample bonuses to the amount they lend. That won’t win him any new friends in the Square Mile...

Cable’s is one of two green papers on the subject of banking and the financial services sector being released today. The business secretary – who has still only been in the job for three months or so – has outlined controversial new plans to boost cash flow to small businesses, which may include forcing banks to sign up to the same kind of lending agreements placed on part-nationalised banks RBS and Lloyds. So in other words, bankers’ lucrative remuneration packages could be hit if they don’t up lending to small firms.

Lending is certainly going down rather than up at the moment - but that may be partly because businesses, like consumers, are trying to cut down their debts rather than borrow more, thus reducing demand (although that's also because the cost of finance is so high). What's more, the banks will argue, not unreasonably, that they have been told to exercise some restraint rather than handing out cash willy-nilly.

Cable has never made any attempt to hide his contempt for the banks, but it seems as though his patience is well and truly running out. ‘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,’ he warned yesterday.

On the other hand, his anti-bank sentiment may not be entirely shared by his coalition colleagues: George Osborne and the Tories appear to have shied away from laying down the law to the financial services sector, whereas the Lib Dems have historically favoured a more interventionist approach. That might not seem all that unreasonable given that the entire sector benefited from taxpayer support (even if only implicitly). But it's still not entirely clear whether he's going after the right target here...

In today's bulletin:

BP lips are sealed on Hayward ahead of board meeting
Cable adopts 'carrot and stick' approach to banks
Richard Branson limbering up for Virgin Active sale?
A Traveller's Tale: Hong Kong's economy - bustling at a worried shuffle
MT Expert's Ten Top Tips: How to pass exams

Find this article useful?

Get more great articles like this in your inbox every lunchtime