November 28, 2014

While risk based capital requirements for banks remain, small companies will not have fair access to bank credit.

Sir Sarah Gordon writes: “Smaller companies [in Europe] have also been able to take advantage of easier borrowing conditions”, “Light amid the gloom”, November 28.

Yes, in absolute terms, the smaller companies might indeed currently face easier borrowing conditions but, in a competitive economy, what most matters for the correct allocation of bank credit, is not the absolute but the relative borrowing conditions. And in that respect, let me assure you that smaller companies, those primarily squeezed by the credit risk weighted capital requirements for banks, are worse of than ever, as a result of the increasing capital/equity squeeze on banks.

And Gordon also wrote: “Even the lack of access to bank lending during the financial crisis [and thereafter] has had positive effects, with small and medium-sized enterprises reducing their over reliance on banks and diversifying their funding sources.” And I am not sure what to make of it. 

Is Sarah Gordon, blaming small and medium-sized companies for their over reliance on banks? If so whoever told her it is their responsibility to achieve a diversification of their funding sources? Have they not enough problems as is, running their smaller companies’ businesses?

No, those really responsible for allowing small businesses to have fair access to bank credit are primarily the regulators, and they are not acknowledging, or much worse yet, perhaps not even understanding the fact that they do impede it… and so, sadly, there is still too much darkness amid the gloom.