Chancellor Urges Banks To Help Small Business

Chancellor Alistair Darling has urged the banks to use a £4billion package of support from the European Investment Bank to help small and medium sized businesses through the credit crunch.
At Commons question time, Mr Darling said: "It doesn't mean that everyone who comes through the front door of a bank gets what they want on the terms they want...But I really do think it is important that British banks play their part.

The prime minister told MPs: "Having recapitalised the banks, we want to ensure that they will extend availability of credit at competitive prices ... We urge banks not to change the terms and charges for existing lending to small businesses in our country."

Britain has a 16.2% shareholding in the EIB, but British banks have only taken 10% of its available funds; the EIB is to streamline the process for applying for loans, but Darling will tell the banks they must themselves make more effort to take up such loans.

The EIB is the European Union's bank and has an AAA credit rating enabling it to raise funds on the capital market at favourable rates; however, it is a "demand-driven" institution, and responds to potential borrowers, in this case British banks, applying for finance. It announced in September it intended to raise its lending by 50% compared with 2007.

The EIB agreed to allocate £12billion in loans to small and medium-sized firms for 2008-09, after a meeting of EU finance ministers in Nice in September. The bank has been financing such firms since 1968.