Figures show that the number of banks in the UK has fallen by 20 per cent in the last 10 years and the financial crisis could mean that there will be an even bigger reduction in the choice of banking services for small firms.
The FSB believes that the Independent Commission on Banking’s (ICB) proposal to separate the investment and retail divisions of banks will help small businesses get a fairer deal.
In February, the country’s five largest banks promised to lend £190bn to companies this year, including at least £76bn to small and medium-sized firms, under the Project Merlin agreement.
However, lending to businesses with a turnover of less than £25m is down by 4 per cent year-on-year, according to the Bank of England’s quarterly Trends in Lending report, published last week.
The FSB is urging that promoting competition in the banking sector should now be emphasised over Merlin targets.
National Chairman of the FSB, John Walker said: “The lack of competition in the sector is the most important thing that the ICB should focus on in its full report in September. The lack of competition gives small businesses less choice, and it also means that the cost of finance is more expensive.”
In a bid to promote competition, the FSB is calling on the ICB to recommend, amongst other things, that any moves to force the state-owned banks to sell off more branches than the EU Commission recommends should be used to help new entrants.
"Allowing new or even specialised banks to buy branches from the state-owned banks would boost competition on the high street; helping to drive down costs and gives the smallest of businesses a fairer deal,” Mr Walker added.
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