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By Simoney Girard | Published Sep 24, 2012

No magic potion for the British banks: LibDems

Speaking at the Liberal Democrat conference, Duncan Hames MP for Chippenham and chairman of the Policy Working Group, spoke on the party’s Policy Motion paper that called for a new way of thinking about banking and entrepreneurship.

He said: “We want to open up access to finance, including through giving the new Financial Conduct Authority a statutory responsibility to foster a diverse banking system in the UK.

“We want to open up the payment system to be genuinely accessible to new financial institutions and to facilitate the emergence and growth of new lenders, in particular by restructuring parts of RBS into local and community banks.”

He told conference that UK banks are over-concentrated and “rapidly deleveraging”, which created a difficult situation for domestic enterprises.

Mr Hames referred to local banks in Germany, Switzerland and the US that serve social objectives and help to foster a diverse banking system that supports start-ups.

With this in mind, the Lib-Dems proposed new green investment bank would “have the freedom to borrow and lend, boosting enterprise”, he said.

Earlier, Vince Cable MP announced proposals to create a £1bn state-backed small business bank, but this has been met with scepticism by academic Mark Littlewood, director general of the Institute of Economic Affairs.

He said: “This proposal will distort the allocation of credit and it is likely to adopt exactly the same mechanisms of government-backed securitisation that played such a large role in the financial crisis. The government should not be taking the risks from business lending that banks are not willing to bear themselves.

“Mr Cable’s government-backed business bank is designed to deal with the problems of small business credit that have arisen since the financial crisis. However, the bank is unlikely to be up and running until seven years after the early events of the crash and so it is unlikely to have any impact on the short-term problems faced by businesses as a result of those events.

“Government policy in this area is incoherent. On the one hand, government is tying banks up in ever-increasing regulation so that they do not wish to expand lending, with the aim to prevent banks failing and becoming a burden on the taxpayer.

“On the other , the government is pursuing various initiatives that involve the government explicitly bearing the risks of loans taken out by individuals and businesses.”

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