The FSB is asking the government to do more to encourage competition in the banking sector. There have been concerns that the current lack of competition could lead us back into recession.
10 years ago, it was found that the 4 main high street banks had 83% of the small business trade. The Federation pointed out that it will not be business as usual for the economy until lending conditions change.
The Bank of England’s latest Trends in Lending report showed that lending fell for the fifth month in succession in July and small businesses were hit particularly hard. Although credit conditions are easing for larger companies, they are still tight for SMEs and freelancers.
More than 40% of SMEs and umbrella companies have a bank loan or overdraft or make use of leasing or factoring arrangements to obtain credit. Those small businesses that get the majority of their finance from the banks are being charged high interest rates even though the base rate is at a historic low.
The Independent Commission on Banking is going to examine the question of competition and there is the possibility that it might recommend splitting up the larger banks. A paper laying out the scope of the Commission’s investigation into the UK’s banking system will be published this Friday.
The European Union has already ordered the part state-owned Royal Bank of Scotland to sell some of its assets, including some branches, so that it doesn’t have a competitive advantage over banks that survived without government bailout assistance.
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Image: Camp Taji obstacle course by The U.S. Army
