Basel banking proposals pose ‘funding threat’ to small firms

The FSB claims that new proposals from the Basel Committee on Banking Supervision, the group that sets global banking standards, will raise the amount of capital the banks are required to hold against certain loans.

In a letter to the Chancellor George Osborne, the FSB argues that there is a risk that banks will have to significantly increase the cost of lending to small businesses.

Neil Kendall, the FSB’s West Yorkshire regional chairman, said: “The new rules won’t just change who can borrow money, the new rules will also dictate who can lend, and that is a worry.

“The FSB has campaigned for far greater competition in the banking industry, and a wider variety of forms of finance, to ensure that small businesses are able to fund their ambitions for growth or expansion.

“During the last few years we have seen alternative forms of lending come to the fore through crowdfunding and peer-to-peer lending operations, like the Leeds-based Rebuilding Society. This alternative form of lending has provided a much-needed cash injection into small businesses who have struggled to obtain finance from the banks and we have seen how these businesses have been able to use the money to secure new procurement contracts and employ more staff.

“We don’t want the new international rules on banking to jeopardise this valuable source of alternative finance.”

John Allan, the FSB’s national chairman, said, many small firms were in a robust mood and wanted to keep growing.

He added: “But the Basel Committee proposals will make it harder for small firms to access funding and threaten to derail their ambitions for growth. These proposals will add another layer of complexity to the raft of bank reforms adopted after the financial crisis.”

Anthony Browne, the chief executive of the British Bankers’ Association, said: “Small business lending did not cause the financial crisis and yet SMEs stand to lose out if these troubling new rules are introduced.

“The proposals also threaten to make mortgages more costly, creating difficulties for those trying to take their first steps on the ladder. We want the Chancellor to put pressure on the Basel Committee to rethink these measures before they destabilise the borrowing prospects of our small businesses and first-time buyers.”

The Basel Committee’s mandate is to strengthen the regulation, supervision and practices of banks worldwide to enhance financial stability. The committee is considering responses to its consultation and it has yet to make final recommendations.

A Treasury spokesman said: “Creating a strong and stable banking sector that supports Britain’s businesses and wider economy is at the heart of the Government’s long-term plan. That’s why we’ve implemented the most radical reforms to the UK banking sector in a generation.

“The Government is also committed to improving competition in the banking sector so that businesses and consumers get a better deal. That’s why we have delivered a wider-ranging programme of reforms to level the playing field for challenger banks and alternative finance providers.”