Tougher laws are being mulled over by Chancellor Alistair Darling, which will force banks to lend to struggling small businesses in the wake of the economic downturn.  Darling is supposedly looking to cap interest rates, while another leading Labour member labelled the actions of the banks as “naval gazing”.

MP John McFall, the head of parliament’s Treasury Committee, has openly criticised UK banks, accusing them of failing small businesses who depend on their credit to continue functioning.  Mr McFall declared that he was “firing a warning shot” both on his, and other people’s, behalf.

John McFall has stated that, as a last resort, all banks should face nationalisation if their refusal to offer lending to small businesses carries on much longer. “I’m firing a warning shot for the Financial Services Authority, banks and others. There is a real frustration building up here. We better get something done before the lid is blown off.”

Seen as both a personal friend to both Gordon Brown and Alistair Darling, Mr McFall’s threats should clearly be given some thought by banks, after the banks had received a massive £500 billion bail out fund, yet still failed to pass along any aid for small businesses in terms of interest cuts or lending.

Mr McFall went on to say, “Despite having been pulled back from the brink, the banks appear reluctant to launch their sizeable recapitalisation lifeboat and start lending again to households and businesses.”

However, the Treasury still played down talks today of new laws being put into effect over the crisis, saying, “There is no suggestion that legislation is imminent.

“We are not at the point of introducing regulations but he is not averse to going down that route. There is a lot of thinking going on in Whitehall about how the banks can be made to live up to what many would say is a moral obligation.”

Still, the fact that the Chancellor Alistair Darling is considering the “nuclear option” should send a shiver down the spines of the banks as these statements mark a strong step forward for the Government’s battle with the banks.

Chancellor Alistair Darling is set to possibly announce stricter lending rules, in the pre-budget report next week, in a move that will attempt to clamp down on ridiculous profits.  Small business leaders suggest that Mr Darling appoints a new “enforcer” to supervise the financial sector and bank lending, otherwise bring in a limit on the amount of interest that can be charged to small businesses when taking loans.

This week has also seen the Federation of Small Businesses write an open letter to Mr Darling, requesting a £1 billion fund to aid small businesses in crisis.
However, the BAA (British Bankers Association) have declared that stricter lending policies would be drawn out of a situation where banks were more meticulous when assessing loans as well as businesses lowering their overdraft needs.

Angela Knight, chief executive of BAA, said, “not everyone has the right business model, not everyone has customers who are coming through their door.”

“It does make absolute sense that what a bank must do is assess that the business that it is lending to is a viable business.  Most of the banks are getting proper arrangements in place to assist the small businesses through a difficult time.”

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