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Tue, 14 July 2020

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Rishi Sunak orders banks to help firms amid claims they are 'profiteering' from coronavirus crisis

Rishi Sunak orders banks to help firms amid claims they are 'profiteering' from coronavirus crisis

The City of London

3 min read

Rishi Sunak has told banks they must do more to help firms on the brink of collapse because of the coronavirus pandemic, as MPs hit out at "profiteering" by financial giants.

A joint-letter from the Chancellor, Bank of England governor Andrew Bailey and Financial Conduct Authority boss Chris Woodard said banks should take "all action necessary" to pass on state support to struggling firms and consumers.

The call comes amid anger from MPs over conditions being attached by some banks to government-backed loans aimed at shoring up ailing companies.

The Treasury has already promised to underwrite £330bn-worth of loan guarantees to businesses, while a credit facility has been agreed with the Bank of England to provide help for the biggest companies.

But Labour's Chris Bryant has accused banks of failing to pass on historic cuts in interest rates to consumers.

"The base rate at the Bank of England is now 0.1% but... banks like Barclays are charging anything between 7% and 12%,” he said.

And he warned: "They’re taking minimal risks and charging exorbitant rates. It looks like profiteering to me."

MPs have also slammed financial institutions for insisting on personal guarantees from business owners in receipt of the state-backed help.

Such guarantees place most of the risk for a loan on business owners themselves, meaning banks can go after their personal savings, shares or other assets if they struggle to make repayments.

Conservative MP Kevin Hollinrake, who chairs the All-Party Parliamentary Group on Fair Business Banking told the BBC: "I asked the Chief Secretary to the Treasury [Steve Barclay] in the House of Commons - does the new scheme include personal guarantees and he said it was his understanding that it would not. Well it's my understanding now that it will.

"It should not include [personal guarantees]. If it does, very few business owners are going to want to take it up. 

"In normal business circumstances, you can't expect banks to lend money without some sort of commitment. But these are unheralded times and unprecedented measures."

'ALL ACTION NECESSARY'

The joint-letter from the Chancellor and regulators says the Government recognises the "huge efforts that you and your teams are putting in to deliver" help at "a difficult time" for the UK economy.

"But we cannot stop there," the trio tell banks. "The next phase of our work will be critical in getting the support to where it is most needed."

And they say: "The priority for all of us – banks, building societies, government and the financial authorities – should now be to take all action necessary to ensure that the benefits of the measures…are passed through to businesses and consumers.

"This will require a willingness to maintain and extend lending despite the uncertain economic conditions. We must ensure that firms whose business models were viable before this crisis remain viable once it is over."

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