That banks do not lend to small businesses in Europe has a reason and is not something irreversible

Michael Sherwood and Richard Gnodde write “The international regulatory response to the financial crisis, which is intended to make sure that banks are better capitalised and their lending operations more cautious, could in some ways make the predicament of small business worse”, “A ‘big bang’ to expand the European economy” February 24.

And they go on: “Robust banks will strengthen the financial sector as a whole. But bank credit is likely to become less freely available and more costly — to the detriment of those companies and economies that are more dependent upon it.”

Sir, are we supposed to believe these two vice-chairmen of Goldman Sachs Group do not know, that is not an irreversible process? That what is making it difficult for small businesses to have access to bank credit in Europe, is foremost that banks need to hold much more equity when lending to these than when lending to something able to be perceived as less risky from solely a credit point of view?

I doubt it, the problems is that they, as bankers, have a vested interest in maintaining the current system which allows banks to earn higher risk adjusted returns on equity with exposures to assets perceived, or made to be perceived safe. It is after all a bankers dream come true… a big ROE without having to take risks.

What is hard for me to understand though is why FT, who is not a bank, does not even want to acknowledge the distortionary impact produced in the allocation of bank credits to the real economy by requiring banks to hold different amounts of equity against different assets.