UK pledges $1.6 billion for state-backed business bank

Mon Sep 24, 2012 11:17am EDT
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By Tim Castle

BRIGHTON, England (Reuters) - Britain said on Monday it would allocate 1 billion pounds ($1.6 billion) towards a new state-backed business bank designed to expand lending to smaller firms currently starved of loans from Britain's main lenders.

The government hopes its backing will be matched by a similar amount from private capital and could support up to 10 billion pounds of new and additional lending, Business Secretary Vince Cable said.

The as-yet-unnamed institution would operate through the wholesale market and would support the supply of loans and long-term capital to smaller firms through existing banks and other financial providers.

"We need a new British business bank with a clean balance sheet and an ability to expand lending rapidly to the manufacturers, exporters and high-growth companies that power our economy," Cable told a Liberal Democrat party conference in Brighton, southern England.

Cable has repeatedly complained that small and growing companies are unable to obtain the loans they need on reasonable terms, hindering a business-led recovery.

Vicky Redwood, chief UK economist at Capital Economics, said the new bank could help small companies and the wider economy but would take time to have any effect.

"It is not going to get off the ground immediately. It is something that might help more in the medium term than the short term," she said.

"There has been concern for some time that small businesses in the UK are particularly dependent on bank finance to a greater extent than in other countries and that it would be good to develop some other forms of finance for small firms. There is a problem there, and this should help to solve it," Redwood added.   Continued...

Britain's Business Secretary Vince Cable speaks during the Liberal Democrats annual conference in Brighton, southern England September 24, 2012. REUTERS/Luke MacGregor