SME lending crushed by bank bonuses

Cut bank bonuses and you have more cash to give small businesses. It's not brain science. And it's the view of ex-banker, Bob Jenkins, now a member of the Bank of England's financial policy committee.

Jenkins reckons that for £1bn of bonuses created means a staggering £20bn less for small businesses. Is he right?

Bonus days are here again

"Every billion less on bonuses would support £20billion of additional small business lending," Jenkins told MPs. Jenkins' maths is based on how much cash a bank has to hold back when giving a loan. However some smaller firms are much risky ventures than larger ones. (It's easy to generalise.)

Bank of England Governor Sir Mervyn King has told the same committee that the financial stability of high street banks has improved - an average 20x leverage ratio. Much safer than pre-crisis when some banks were lending up to 40 times, or even more.


So Jenkins wanted any additional money to be lent out at 20x, rather than this cash being handed back to the bankers in bonuses. It's likely King broadly agrees. He has already warned banks they face a public backlash should they fail to keep a lid on bonus pay-outs.

Interestingly, King has started to use the word 'fair' - "Bank bonuses must be fair" he says. That's not a word we rarely hear from the financial community, or from many politicians (though the word is increasingly figuring in Labour speeches now).

Will banks listen? Barclays boss Bob Diamond could be in line for £10m. RBS is likely to pay out to high-performing directors, despite owing taxpayers' billions. The link between the public and the banks remains rotten.