Alistair Darling is once again stepping up the pressure on banks and has announced that the banks must do “much more” to aid small businesses in the country.

The Chancellor made a promise to small businesses that he would apply any necessary pressure to get the banks lending appropriately.  He also understands that more governmental guarantees are needed as ministers start unfreezing credit.

Alistair Darling said, “I’m prepared to do more to free up lending. One of the reasons we established the lending panel, which has its meeting tomorrow, where I and Lord Mandelson will meet the chief executives of the biggest banks as well as Nationwide, is because we believe there is more the banks can do, particularly to small- and medium-sized enterprises.”

The announcement comes as reports are showing that banks are still failing to pass along the necessary 2 per cent interest cuts.  What we are actually seeing banks do is raise their overdraft charges and lenders charges.  The average overdraft charges were raised by 18 per cent n November, while mortgage rates saw some homeowners forking out over £2,000 extra every year.

Darling said that the Government are supporting the banks and so the banks must then pass on this help to the public, saying, “Banks have to understand we put very substantial sums of public money in to support them, and they in turn have to play their part. They have to go very much further in terms of supporting companies and individuals.”

Alistair Darling made it clear that he would not be backing down on his previous statement by always applying pressure to the banks.  He would only stop when the rates of lending were back to what they were in 2007.

By having the interest rates at such a massive low, there is a fear around the country that the country will see a deflation.  However Darling claimed that there was no deflation risk.

“The greater risk to our economy and the world economy is growth, and the need to maintain lending,” he told the Treasury Committee.

Deflation provides various problems for economies as the public hold off spending money on big purchases as they feel the price will drop further in time.  However, Alistair Darling is claiming that the introduction of the low interest rates will bring more stability to the lending situation and bring the country away from deflation risks.

The Government is also considering recapitalising the banks, as Alistair Darling claims that he is “prepared to do a number of things” to bring stability to the lending situation.

He went on to say to MPs on the Treasury Select Committee, “However, from the banks’ point of view they have to understand that with billions of pounds of taxpayers’ money, either invested in shares, or being made available as a guarantee, the general public and businesses are looking for something in return. But we’ve also got to make sure that is passed through.”

Darling is hoping that the banks listen before they start disbelieving his claims of action.

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