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The government has warned banks not to rip off businesses looking for state-guaranteed loans to support them during the coronavirus outbreak.
Chancellor Rishi Sunak, Governor of the Bank of England and head of the Financial Conduct Authority has written to the heads of the largest banks to express their concerns.
They said: “The priority for all of us – banks, building societies, government and financial authorities – should now be to take all necessary steps to ensure that the benefits of the measures … are passed on to businesses and consumers “, they wrote
“This will require a willingness to maintain and expand lending despite uncertain economic conditions.”
The move came after it was claimed that banks were insisting on personal guarantees before providing money under the business interruption loan program.
Mr Sunak announced last week that the government would back interest-free loans of up to £ 5million for 12 months to help businesses weather the crisis, with banks covering up to 80% of losses if the companies are unable to pay.
But despite government assurances and lower interest rates, MPs said some “profiteer” banks were charging 12% interest on money after the first year.
In a warning to lenders, the prime minister’s spokesman said loan terms must ensure that all businesses that were viable before the crisis should be allowed to remain in business after.
“Under the business interruption loan program, the government will not charge companies for collateral,” they said.
“In addition, the government will cover the first 12 months of interest charges. Banks must also play their part.
“They should ensure that the benefits of the support put in place by the government and the Bank of England are passed on to businesses and consumers. We need to ensure that companies whose business models were viable before this crisis remain so. once this crisis is over. “
Meanwhile, the spokesperson also said banks were “not allowed” to ask for houses to be placed as collateral against the loans.
Labor shadow secretary Rebecca Long-Bailey urged the government to take further action against banks, warning that restrictive conditions could deter companies from asking for the emergency money.
“It is scandalous that many banks are putting all the risk of government guaranteed loans on distressed businesses, despite government guarantees that protect lenders up to 80%,” she said.
“The government protects the banks but does not demand any protection from the companies in return. This must change immediately.
“Banks were responsible for the last financial crisis, they must not be allowed to hamper public efforts to support our economy through this crisis.”
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