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Clegg vows to 'break open' market
Nick Clegg is to appeal for businesses to tell Government how to "bypass the banks" as he vows to "break open" the market.
The Deputy Prime Minister will accuse the banking sector of sitting on its hands over lending as firms continue to complain they cannot access vital finance.
Mr Clegg will insist the Government plans to drive lending by opening up the financial sector to make it more competitive and diverse.
Addressing the Institute of Directors' annual convention, the Lib Dem leader will dismiss claims the banks have clamped down on lending to meet new rules in the wake of the banking crisis, insisting the capital targets are being phased in over the next seven years.
He will say: "My message to the banks is this - yes, of course, get your balance sheets in order. Meet the new capital requirements. But don't lurch to the other extreme at the expense of British business. Don't unnecessarily hoard capital when businesses need loans. Don't sit on your hands while firms are crying out for cash. And understand that getting credit to businesses is in your interests too."
Combined net lending by Britain's top five banks shrank every quarter last year despite the Government's Project Merlin agreement committing them to easing lending, particularly for small businesses.
Mr Clegg will say ministers cannot "march into the banks and start taking their individual lending decisions for them" but they can "exert pressure". "We need to break open the market here in the UK, with more competition within the sector as well as more alternative sources of finance, outside of it."
He will add: "The coalition is going to invest directly in non-bank finance as part of our £1.2 billion Business Finance Partnership - £700 million will be invested through up to seven fund managers who will lend directly to British firms. There will be additional investment from the private sector with our share eventually returned to government. That still leaves half a billion, £100 million of which will be invested in banking alternatives for SMEs. And, if we see quick take-off, I will certainly want us to invest the remainder as quickly as we can.
"Investments will be made over the coming months, to precisely the kinds of schemes I've described and I'm issuing a call to all of you today - tell us your ideal way to bypass the banks to unlock new channels of capital.
"How can we help rewire money to the small business world? Because, yes, we're rebuilding the banking sector to make it safe. Yes, we're intervening to make the banks lend. Yes, we're supporting credit and investment ourselves. But the missing parts of this puzzle are competition and diversity. So tell us what would work for you."