The six largest banks in the UK will set up a task force to evaluate the business lending landscape in the UK and look at ways to increase credit to UK companies. However, at first glace it appears this is just the next step in the political dance that the UK coalition government and the banking community have been sashaying to for quite some time.

First, the government says small businesses--the fuel for the furnace of recovery--need access to more credit in order to grow; then the banks say we have no money to lend because you are making us hold more in reserve; then--surprise, surprise--the banks all return to profit; then the government says okay now lend to small business; then the banks say they don’t want our money; then the government says okay, really guys, you must lend more to small business; then the banks say okay we will set up a task force to look at it….and the dance goes on.

Whether banks should be forced, or even encouraged, to lend more to small business was the focus of Nick Lord’s blog on July 25. As he quite rightly pointed out, it was just such actions that were pivotal in the subprime mortgage crisis in the US and is driving the credit crunch in China right now.

So the hope must be that this new task force will actually examine the lending environment and determine where and how it makes fiscal sense to lend, where it does not make sense, and also where the risks lie in the business lending landscape right now. 

According to British Bankers Association Chairman--and head of HSBC--Stephen Green, the task force will look at the securitisation and business finance markets to examine the ability of companies to raise capital and what needs to change to make the business lending landscape “stronger and more sustainable." The task force will report in October on their findings.

Given that UK banks are still in the process of shrinking their balance sheets and deleveraging, and they are trying to fill the credit void left by foreign lenders that now barely participate in the market, it seems unlikely that business lending will increase any time soon.