British banks insist they are doing their bit – whether supporting riot-hit businesses and green farmers or meeting their obligations to lend to small enterprises


By the end of the first half of 2011, UK banks had failed to lend half of the £76bn they said they would lend to small businesses in 2011. According to new data from the Bank of England, the UK’s central bank, lending to the end of June fell £700m short of the £38bn half-way mark.


Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander agreed to lend £76bn to small businesses this year as part of Project Merlin, an agreement with government covering banking activities including lending, pay and bonuses.


But Brian Capon from the British Bankers Association insists: “Banks have not missed any lending targets. There is one target for the whole year and they are on course to meet it.”  Sarah Elliott from Royal Bank of Scotland says: “We are punching way above our SME lending targets in terms of market share and our overall lending is up considerably on 2010 – 44% higher than last year.”


Shortly after this data was released, RBS, Santander, Lloyds Banking Group and Barclays were among those announced to be contributing cash and support to the now £4m “high street fund”, a charitable fund designed to help businesses across the UK repair their premises and resume trading after the recent urban riots.


Barclays has also announced a new £100m fund to help UK farmers invest in renewables projects, including solar, wind and hydro. The fund will help support UK renewables targets.


But in tandem with these positive measures, banks have continued to lobby against proposals from the Independent Commission on Banking.


The long-awaited recommendations from the commission include proposals to ringfence core lending from riskier investment banking activities, and force banks to hold more capital. Such proposals, which have already been considerably watered down, are designed to help prevent another financial crisis.


In defining responsible behaviour in the banking sector, RBS’s Elliot identifies “operating with integrity” and “playing our part to address society’s challenges”. Capon from the BBA agrees, saying: “The point that is always overlooked is the hundreds of millions of pounds that the financial services sector contributes to the community each year.” 


Business and community 


Addressing such challenges need not be outside of a bank’s core business activities, as illustrated by Barclays’ renewables fund. “From our survey work, it’s clear that farmers themselves are motivated by both economic and environmental reasons,” says Barclays spokesman Michael O’Toole. “Likewise, the interests of business and care for the environment can be complementary.”


But Tony Greenham, head of finance and business at the New Economics Foundation, thinks banks need to do more. “Instead of a new ‘Project Merlin’ every year, what we need is a UK version of the US Community Reinvestment Act,” Greenham says.


The CRA grew out of the civil rights movement and encourages responsible lending. “What the financial crisis has shown us,” Greenham argues, “is that what’s best for banks is not always best for society.”


Greenham would like to see banks lending to intermediary local organisations, which he says would be better placed to identify profitable small businesses and projects. Arguably though, such action would need new legislation: an area where currently, the UK government rather has its hands full. 

 



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