Treasury 'lacks will' to take on banks

Wednesday, 20 April 2011 12:01 AM

By Hannah Brenton

The Treasury lacks the will to force banks to lend, an influential committee of MPs has found.

The public accounts committee found that the Treasury was unwilling to impose sanctions on publically-owned banks Lloyds Banking Group (Lloyds) and the Royal Bank of Scotland (RBS) when they did not meet lending targets.

The government first bailed out Lloyds and RBS when the sub-prime mortgage crisis hit in 2008, leading to a much wider financial meltdown that almost brought down Britain's biggest banks.

In early 2009, the government shored up the banks further by launching the asset protection scheme to ensure the banks' assets against any further exceptional losses.

In exchange, the banks agreed to publish targets and increase lending to households and small businesses.

The committee found the scheme had been successful at restoring confidence and stability in the economy, but urged the Treasury to adopt a more heavy-handed approach in disciplining the banks.

"The Treasury lacked effective sanctions against RBS and Lloyds when they failed to meet their targets for lending to small businesses in the first year of the scheme," committee chair Margaret Hodge said.

The banks met their mortgage lending commitments, but did not reach the £30 billion target for lending to businesses.

"The Treasury appears to lack strong determination to use its influence to increase lending to small businesses. We expect it to find effective mechanisms to ensure the banks meet their lending commitments." Ms Hodge said.

The report also expressed alarm that the two banks had not provided the Treasury with enough information to assure their assets were not linked to fraud or other criminal activity.

Tags:
• banking crisis
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• economy
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• economy and finance