Exclusive audio: Smaller banks could help economy grow, says Bank of England chief

YORKSHIRE'S smaller financial lenders could play a key role in helping the UK economy to grow, according to a member of the Bank of England committee that sets interest rates.

Adam Posen, of the Bank's Monetary Policy Committee, said establishing local lenders in places like Leeds would help small businesses by making the financial services sector more competitive.

Mr Posen, who was speaking during a fact-finding trip to Yorkshire, said there was "no animus" during interest rate setting meetings, despite his public disagreement with fellow MPC member Andrew Sentance, who has voted for higher interest rates in recent months.

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Mr Posen said he had argued that there "should be more breaking up of the banks".

He told the Yorkshire Post: "Arguably, there should be encouragement by the Government to have new lenders coming in to the business. That's where the smaller financial institutions we see in Leeds could play a role.

"If the major banks are not doing as much small business lending, as I think is probably warranted, then there should be good business opportunities for local banks and new banks that are paying attention to come in...Partly as a result of the crisis, we have only got four major banks really lending in the UK. There's no magic number...but in most other industries if you've got a few players who dominate the industry, the fair trade commission starts getting interested."

Mr Posen repeated his belief that there was a case for considering more monetary policy stimulus - or quantitative easing - to support economic recovery.

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He said: "We should be doing more, based on my best assessment forecast right now. The risks are on the downside, not just for growth, but for the inflation target... It's not that I'm worried about a double dip. It's not that I'm worried about another crisis, it's more this long term concern."

When asked if there was a split emerging on the MPC over interest rate policy, Mr Posen said it was healthy to have debate, adding: "There was a time when several commentators were worried that the governor was bullying us and there was 'group think' on the MPC."

He stressed that he respected Mr Sentance greatly, despite their differing views.

He added: "There are people on the committee who are not necessarily going public right now with differing views. There was a lot of internal discussion before I or Andrew went public. It's a healthy debate. It's legitimate. That's why you have a committee of nine people who try to make the difficult call.

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"This isn't like a coalition government, or your Miliband brothers, where if there's a split, there's some sort of drama involved or dysfunction. This is a committee that's trying to make the right call. "There's no animus and there's no breakdown by virtue of us having a difference of opinion."

When asked whether a number of committee members had similar views to Mr Sentance, Mr Posen replied: "That's one thing I'm not going to say. Each individual committee member decides how much they want to say in public."

Mr Posen said he wanted to make the case that monetary policy should continue to be aggressive about promoting recovery.

He added: "It's not that I worry about a disaster. It's not that I worry about a contraction. I worry about a longer period where we are not growing as fast as we would be capable of. That means there are people who are unemployed who can't find new jobs and become long term unemployed. The long term unemployed become harder and harder to re-employ. I worry that there are businesses who are sitting on the fence about whether to re-open certain capacity, or re-invest.

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"Over time, if the prospects stay bad, they are more likely to sit tight and do nothing. If the banks are reluctant to lend now and are getting low returns, then they may pull in their horns more and you get less lending...While I'm not denying that we've made mistakes and overshot the inflation target recently, looking forward, to me the risks are that we are going to undershoot, that we're going to get lower inflation than target pretty consistently over the next couple of years."