Analysis: Boosting European lending without banks

Wed May 1, 2013 1:53am EDT
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By Mike Dolan

LONDON (Reuters) - With a lack of bank lending to European businesses stifling the region's economy, sidestepping the middlemen - if not quite cutting them out altogether - is becoming more attractive.

Stricter regulation, higher capital buffers and basic risk aversion among banks has meant floods of cheap liquidity from central banks is still not getting to the real economy. As the economy weakens, ebbing loan demand compounds the problem.

For the debt-burdened and cash-strapped governments and taxpayers who were forced to bail out so many of their undercapitalized banks over the past six years, another rollback of regulation or capital buffers can hardly be the answer.

Yet if long-term strengthening of the banks is incompatible with short-term relief for credit-starved the small and medium-sized enterprises (SMEs) who employ more than two thirds euro zone private sector workers, then stalemate and stagnation loom.

The European Central Bank's latest loan survey showed lending to non-financial firms continued to contract in March by more than one percent on an annual basis. [ID:nF9N0C3013]. Bank of England data for the same month tells a similar story, showing lending to UK SMEs down more than 3 percent over the past year.

And the problem extends across the continent.

"Banks have got plenty of cash but they can't get it out of the door," Suma Chakrabarti, President of the European Bank for Reconstruction and Development, told Reuters last week.

Central banks have so far opted for carrots over sticks.   Continued...

An illustration picture shows Euro coins, photographed in Warngau April 3, 2013. REUTERS/Michael Dalder