FSB calls for chancellor's intervention on banking standards

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The efficacy of European banking proposals is being challenged by the FSB

The Federation of Small Businesses (FSB) has highlighted concerns regarding the impact that new international banking rules could have on smaller firms across the UK in the months ahead.

In an open letter to chancellor George Osborne that was sent earlier this month, the FSB has outlined its grave concerns that the latest raft of proposals from the Basel Committee on Banking Supervision will lead to many banks and building societies reducing the amount they lend to small businesses.

As part of the committee's Revisions to the Standardised Approach for Credit Risk publication, all European financial institutions (including those in the UK) will be required to hold increased levels of liquidity as part of measures designed to address the likelihood of a repeat of the banking collapse that sparked the global financial meltdown at the end of the last decade.

However, while these measures are extremely welcome in terms of the overall stability of markets, the FSB believes the need to stockpile increased funding will mean smaller companies are likely to lose out, as lenders become more reticent regarding who they will lend their more limited resources to in the years ahead.

National chairman of the FSB John Allan commented: "Our research shows that small businesses are currently in a robust mood. Nearly two-thirds of those surveyed signalled a desire to grow, helping to sustain the economic recovery through 2015. But the Basel Committee proposals will make it harder for small firms to access funding and threaten to derail their ambitions for growth."

Indeed, Mr Allan revealed lending in the UK remains worryingly centralised, with the nation's four largest banks responsible for 85 per cent of all lending to the UK's small to medium-sized enterprises (SMEs).

Forcing lenders to maintain higher levels of liquidity will therefore play into the hands of the larger lenders, while at the same time limiting choice and competition within the financial sector.

However, it is not just the FSB that believes the UK government must now take action to protect businesses from these current proposals.

Anthony Browne, chief executive of the British Bankers Association, stated: "We want the chancellor to put pressure on the Basel Committee to rethink these measures before they destabilise the borrowing prospects of our small businesses and first-time buyers."

He added that UK SMEs did not cause the global financial crisis, but they are the ones that stand to lose out if these proposed new measures come into effect.