British Business Banking: The Failure of Finance Provision for SMEs

British banks are risk-averse when it comes to providing long-term loan finance to businesses, which is due to the historical, institutional, political, and cultural structure of the British banking system and the UK SME population. This risk aversion has persisted to the present day, despite the postwar period and expansion of consumer demand and commodity production. This book explores why this banking attitude has persisted and provides recommendations for British banks to provide a more balanced mix of financial provision to SMEs.

Format: Hardback
Length: 180 pages
Publication date: 25 February 2021
Publisher: Agenda Publishing

The dominance of bank lending in the financing of small and medium-sized enterprises (SMEs) in Europe is well-observed, while in the UK, bank overdrafts and credit cards are the primary sources of SME funding. The roots of this significant difference lie in the historical, institutional, political, and cultural structure of the British banking system, as well as explanatory factors in the UK SME population. However, the real mystery is why, in the twentieth century, there has been no significant change in the attitudes of British banks towards providing long-term loan finance to SMEs. This risk aversion might have been expected to alter during the postwar period and the substantial expansion of consumer demand and expanded commodity production, but it did not.

This book explores not only how the historical formation of British banking structures produced such a relatively risk-averse arrangement compared to other European countries and the United States, but also why this banking attitude has persisted to the present day. The book concludes with a suite of recommendations necessary for British banks to provide a more balanced mix of financial provision to SMEs.

The historical formation of British banking structures has played a significant role in producing a relatively risk-averse arrangement compared to other European countries and the United States. The Bank of England, established in 1694, was the first central bank in the world and played a crucial role in shaping the British banking system. The Bank of England's focus on maintaining price stability and controlling inflation has led to a conservative approach to banking, which has been reflected in the attitudes of British banks towards lending.

In addition, the British banking system has a long history of private ownership, with many banks being owned by individual shareholders rather than by the government. This private ownership structure has led to a focus on short-term profits and shareholder returns, rather than long-term growth and development. This has also contributed to the risk-averse approach of British banks towards lending.

Furthermore, the political and regulatory environment in the UK has also played a role in shaping the risk-averse approach of British banks. The UK has a strong tradition of financial regulation and oversight, with the Bank of England and the Financial Services Authority (FSA) playing a central role in monitoring and regulating the banking sector. This regulatory environment has led to a conservative approach to banking, which has been reflected in the attitudes of British banks towards lending.

The UK SME population has also contributed to the risk-averse approach of British banks towards lending. SMEs are typically smaller and less established than larger corporations, and they face a range of challenges, including access to finance, regulatory compliance, and market volatility. As a result, British banks have been reluctant to lend to SMEs, as they perceive them as a higher risk.

Despite these factors, it is surprising that there has been no significant change in the attitudes of British banks towards providing long-term loan finance to SMEs in the twentieth century. This risk aversion might have been expected to alter during the postwar period and the substantial expansion of consumer demand and expanded commodity production, but it did not.

One possible explanation for this persistence is that the British banking system is highly concentrated, with a few large banks dominating the market. This concentration has led to a lack of competition and a lack of pressure on banks to offer more diverse financial products. In addition, the regulatory environment in the UK has been relatively lax, allowing banks to operate with little oversight and accountability.

Another possible explanation is that the attitudes of British banks towards lending are deeply ingrained in the culture and values of the banking sector. Banks in the UK have traditionally been focused on risk management and prudence, and they have been reluctant to take on excessive risk. This risk-averse approach has been reinforced by the financial crisis of 2008, which highlighted the importance of maintaining financial stability and stability.

Despite these challenges, there are several recommendations that can be made to encourage British banks to provide a more balanced mix of financial provision to SMEs. One recommendation is to increase competition in the banking sector, by encouraging new entrants and promoting the development of smaller banks. This can help to increase the diversity of financial products available to SMEs and promote greater competition in the banking sector.

Another recommendation is to promote greater financial education and awareness among SMEs. This can help to increase the understanding of financial products and services available to SMEs and promote greater financial literacy among business owners. This can also help to increase the confidence of banks in lending to SMEs and promote greater lending to SMEs.

In addition, the regulatory environment in the UK should be strengthened to promote greater accountability and oversight of the banking sector. This can help to increase the transparency of banks' operations and promote greater financial stability and stability. This can also help to increase the confidence of banks in lending to SMEs and promote greater lending to SMEs.

Finally, the attitudes of British banks towards lending should be challenged and changed. Banks in the UK should be encouraged to take on more risk and offer more diverse financial products to SMEs. This can help to promote greater economic growth and development in the UK and promote greater financial inclusion among SMEs.

In conclusion, the historical formation of British banking structures, the concentration of the banking sector, the risk-averse approach of the UK SME population, and the regulatory environment in the UK have all contributed to the risk-averse approach of British banks towards providing long-term loan finance to SMEs. However, there are several recommendations that can be made to encourage British banks to provide a more balanced mix of financial provision to SMEs, including increasing competition, promoting greater financial education and awareness, strengthening the regulatory environment, and challenging and changing the attitudes of British banks towards lending. By implementing these recommendations, British banks can help to promote greater economic growth and development in the UK and promote greater financial inclusion among SMEs.

Weight: 454g
Dimension: 241 x 163 x 24 (mm)
ISBN-13: 9781788213011