BoE Policymaker Urges Action Over Lending

Banks are still failing to lend to UK businesses, meaning they are not providing value for money to the Government, a leading policymaker has told Sky News.

In an interview on Boulton and Co, Bank of England policymaker Adam Posen criticised banks for not lending to small and medium sized businesses - one of their primary economic functions.

He said: "The British government, as a regulator, is not getting value for money because the role of banks is to provide credit to the growth of the real economy in the UK and they are not doing the job."

He said that while there had been signs in October that the Government had "a head of steam" behind measures to encourage more lending, such as credit easing, there had not been any structural changes to go with it.

Capital requirements were being used as an excuse by banks not to lend, he added.

The BoE monetary policy committee member said loan fees were going up, which demonstrated there was increasing demand from business despite the poor economic backdrop.

It is much easier for SMEs in America to get cash because there are more banks and a more competitive environment, he added.

Growth in the US economy has been picking up recently, compared to the UK where GDP shrank in the last quarter of 2011.

Mr Posen also said the reward structure for bankers needed to be changed to encourage more lending.

"We've got to change the competitive pressure on them, change the rules so they are forced to do the job right," he said.

His comments follow recent controversy over bonuses awarded to executives at the Royal Bank of Scotland, which is 82% owned by the Government.

Mr Posen spoke to Sky News ahead of a speech to the Trades Union Congress in London on Thursday.

He told the union leaders that the UK's banking infrastructure needed to be revamped and the Bank of England should consider buying more assets other than Government bonds as part of that.

He also suggested loaning to smaller businesses could be encouraged by standardising applications, sharing credit rating data and developing a junk bond market.

"In terms of the empirical claim that it's a credit demand problem rather than a credit supply problem, you can never prove this. But there is very strong circumstantial evidence that this is a supply problem," he added.

The BoE is widely expected to approve another round of quantitative easing at next week's MPC meeting in an attempt to boost the ailing economy.