Small business loan deal ‘stalls’

The deal was supposed to announce nearly £200bn in loans to small businesses

Attempts by the coalition government to reach an agreement with the UK’s biggest banks on the amount they lend to small businesses have stalled, the BBC has learnt.

The plan known as Project Merlin which was expected to have resulted in an announcement this week but negotiations will now continue.

About £200bn in loans to firms was to have been made available in 2011.

The stumbling block is thought to have concerned governance issues.

BBC’s business correspondent Joe Lynam says bank bosses argue that lending targets for what might be weaker businesses could breach rules that say any decision should be in the best interest of shareholders.

They also say banks’ ability to lend to companies and consumers may be restricted if some of the ideas from the Independent Commission on Banking set up by the government are implemented.

On Saturday, the head of the commission said the failure of banks to efficiently manage risks had been “spectacular” and wide-ranging reform was needed but stressed that no final decisions had yet been made.

In a speech to the London Business School, ICB chairman Sir John Vickers said plans to separate bank trading and retail operations were being looked at.

Sir John, a former chief economist at the Bank of England, also hinted that banks may need to set aside even more capital for emergencies, which might reduce moneys available to lend.

The ICB is looking at financial stability and competition, including the question of what should be done about banks deemed “too big to fail”.

It is also considering issues like whether too few big banks have too much control over the retail banking sector in the UK.

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