Banks have been given a stark waring to “ Ensure that firms whose business models were viable before this crisis remain viable once it is over”, in a letter from the chancellor, governor of the Bank of England and chief executive of the FCA.
In a joint letter to banks’ chief executives, chancellor Rishi Sunak, the Bank of England governor, Andrew Bailey, and the interim head of the Financial Conduct Authority (FCA), Christopher Woolard, told UK banking chiefs to take “all action necessary” to make sure measures designed to ease the impact of the outbreak are benefiting households and businesses as planned.
“The priority for all of us – banks, building societies, government and the financial authorities – should now be to take all action necessary to ensure that the benefits of the measures… are passed through to businesses and consumers,” the letter said.
“This will require a willingness to maintain and extend lending despite the uncertain economic conditions. We must ensure that firms whose business models were viable before this crisis remain viable once it is over.”
The Treasury has already promised to underwrite £330bn-worth of loan guarantees to businesses, while a credit facility has been agreed with the Bank of England to provide help for the biggest companies.
MPs have also criticized financial institutions for demanding personal guarantees from business owners in receipt of the state-backed help, which place most of the risk for a loan on business owners themselves, meaning banks can go after “guarantor’s” personal savings, shares or other assets if they struggle to make repayments.
Conservative MP Kevin Hollinrake, who chairs the All-Party Parliamentary Group on Fair Business Banking told the BBC: “I asked the Chief Secretary to the Treasury [Steve Barclay] in the House of Commons – does the new scheme include personal guarantees and he said it was his understanding that it would not. Well it’s my understanding now that it will.
“It should not include [personal guarantees]. If it does, very few business owners are going to want to take it up.
“In normal business circumstances, you can’t expect banks to lend money without some sort of commitment. But these are unheralded times and unprecedented measures.”