Alistair Darling’s demand for high street banks to follow in the footsteps of the Royal Bank of Scotland has been met with strong disagreement by the banks.  The Royal Band of Scotland recently declared that they would not be removing overdraft facilities for small business in the wake of the economic climate, but other banks are failing to follow suit.

Both the Chancellor Alistair Darling and the Governor of the Bank of England, Mervyn King, have teamed up with business organisations to come to an agreement with the banks to make lending available to those businesses struggling in the midst of the current economic downturn.

Yet the banks are refusing to shift on their policies and some of the major banks, Lloyds TSB, Barclays and Halifax Bank of Scotland have issued statements announcing that they have no plans to follow the measures the Royal Bank of Scotland has taken.

A spokesperson for Lloyds TSB has said, “We do not just call in overdrafts unreasonably without notice. The commitments [RBS] are saying they are giving is a matter of a rather superficial difference between contracts that are given on the basis of a short and straight-forward agreement and a facility loaded with conditions of default.”

Mervyn King has announced that governmental action is needed to resolve this problem, telling MPs, “We may need to put further capital in if necessary and, as last resort, we can’t rule our measures where the government have to intervene directly to make sure that lending continues.”

The Royal Bank of Scotland made the decision to aid small businesses, that bank with them, due to fears that 10 per cent of it’s one million small business customers would end up in financial ruin.  Peter Ibbertson, Chairman of Small Businesses for the Royal Bank of Scotland, said in a statement, “The Bank fully recognises that one of the biggest worries facing small businesses is the increase in the cost of borrowing and we believe this move will reassure our customers that the Bank is committed to supporting them.”

The move by the Royal Bank of Scotland has been met with delight by small businesses banking with RBS.  Chief executive of the Forum of Private Business, Phil Orford, said, “This commitment from RBS must be welcomed by us, by all political parties, but, most of all, by many hundreds of thousands of small businesses, which have now been given short and medium term certainty about their borrowing arrangements. This is just the sort of action we have all been calling for and it should be applauded.”

However, it is clearly time for the other major banks to follow the standard that has been set by the Royal Bank of Scotland.  Local Barclays managing director, Steve Cooper, however feels differently, claiming, “We think what Barclays is doing is appropriate in terms of supporting all small business customers and not just those that borrow. Yes, we have changed some of our interest rates, but some of the have gone up and some have gone down.”

Still, Alistair Darling said it best when he summed up the matter in a simple sentence - “This should become the benchmark for all UK banks.”  Small businesses around the country will be hoping that this will be the outcome over the coming weeks.

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