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High street banks are thought to have resisted demands from the chancellor to hand over more information about their loans to businesses and homeowners, at a confrontational meeting held last night.
Senior bankers met Alistair Darling and Lord Mandelson, the business secretary, with expectations of further measures to force the banks to step up lending to small businesses next year.
The government is considering ways to beef up the bank bail-out scheme it announced in October, and may guarantee a wide range of loans in order to compel banks to channel cash into businesses and mortgages. In turn, banks could be set strict targets for lending next year when the recession is expected to deepen.
The bankers met as the department for business, enterprise and regulatory reform revealed it had forced the credit card companies, many of them owned by the banks, to agree to tough conditions for when they dealt with customers.
Admitting the changes "will not be without financial pain for credit card companies", consumer affairs minister Gareth Thomas unveiled three initiatives:
• Lenders will be offered an alternative if a credit card rate is being raised, and be allowed to pay off the debt at the existing rate of interest.
• Customers will get 30 days' notice of an increase in the rate.
• Struggling borrowers, those who have not made payments for two months or more, will not face an increase in their interest rate.
Thomas said: "These commitments will help families manage their finances and cope with repaying their debts."
The government's determination to restrict the manner of the raising of credit card interest rates, plus concessions to customers sliding into arrears, may signal a desire to put controls on other lending.
Darling used yesterday's meeting to demand greater disclosure on the amount of lending to businesses and households.
But banks are thought to be reluctant to comply because of issues of confidentiality and fear the government may try to "name and shame" those who do not meet its expectations.
"Banks say they are increasing lending but the anecdotal evidence from people and firms is that loans are hard to come by," said a Treasury source.
Treasury officials are concerned that it is hard to formulate policy to encourage greater lending into the economy if they do not precisely know the picture.
While the Bank of England collects monthly data on bank lending, it does so in aggregate and not for individual banks. The Treasury would like to see what all banks are lending, whether they participated in the £37bn taxpayer recapitalisation scheme or not. Officials would also like to see the data at least fortnightly rather than monthly. "There is a credit crunch going on and we need to know more about credit flows," said the source.
Three sub-groups of officials presented to the lending panel three reports on lending: to small businesses, on mortgages, and credit card loans.
The big banks have tried to pre-empt action by announcing initiatives for small business and mortgages in recent weeks.
The three which accepted taxpayer funds, Royal Bank of Scotland, Lloyds TSB and HBOS, have already been told by the government they should maintain lending to businesses and would-be homeowners at 2007 levels. But officials are concerned that concessions being extracted from the bail-out banks are not taken seriously and may need to be enforced.
HBOS, the last expected to take taxpayer funds, will today ask its shareholders to support its £11bn fundraising at a meeting in Birmingham. The capital increase is a precursor to a rescue takeover of Lloyds TSB next month anticipated to create a bank more than 40% owned by the taxpayer.
Unfreezing credit
A number of options are being discussed by the banks and government to make funds available to small businesses and homeowners in the worsening economic crisis. The main ones are:
Extension and expansion of the special liquidity scheme
The SLS was introduced to prop up the banking sector after the near-collapse of Bear Stearns in April. It was intended to last six months but was extended by a reluctant Bank of England and is now expected to close at the end of January. The SLS allows banks to swap illiquid mortgage bonds for more attractive government paper, every nine months for up to three years. The banks pay a fee, known as a haircut, in return. Lenders believe the scheme should be extended beyond January and expanded to allow bonds which package up other loans, such as credit cards .
Extension of the credit guarantee scheme
This is part of October's bank bail-out under which the government provides guarantees for £250bn of debt issued by banks to help provide them with more funding to pass on to customers. This may be the route by which the government adopts the recommendation in a report by former HBOS chief executive Sir James Crosby, who believes there should be a £100bn guarantee over two years for mortgage-backed bonds to try to kick-start lending between banks.
A blanket guarantee for lending
This would be an adaption of the national loans guarantee plan touted by Conservatives. It would see taxpayers' money underwriting loans for small businesses, which would help the banks that feel unable to lend because of a regulatory demand they hold more capital. A guarantee by the government would help reduce the amount of capital they need to hold for business loans.
Bank for small businesses
The government could take portions of banks' lending books to small and medium-sized business and ringfence them in a new institution. It could then use this to offer small businesses funds. Seen as a last resort by many lenders.
- UK banking sector
- Alistair Darling
- House prices
- Banks and building societies
- Borrowing & debt
- Mortgages
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