Posted by: Ben Vickers on October 26, 2011
Europe’s banks have turned up the pressure on politicians in Brussels, saying a push to increase bank capital may limit their ability to lend to the region’s companies.
The bankers know this message will get the attention of EU governments: European companies are highly dependent on bank loans. Lending to the private sector totaled 145 percent of GDP in 2007, according to Bank of America economist Laurence Boone. That’s more than double that of the U.S., where companies rely more on stock and bond markets for capital, Anne-Sylvaine Chassany and Simon Kennedy report.
Politicians huddled in Brussels want banks to change their ways, but maybe not by slashing corporate lending, given the desperate need to stimulate growth and reduce unemployment in the EU.
Still, a cut in bank funding for corporations is inevitable in some countries. Spanish corporate loans outstanding at the start of this year amounted to 915 billion euros - or 87 percent of GDP, according to Bloomberg Industry data. This is double the amount outstanding in 2004, when it totalled 54 percent of GDP. Spain hasn’t yet paid for the growth it enjoyed these past few years - in fact, ever since Jose Maria Aznar first voiced his “Spain’s doing well” mantra.
Given the outlook for growth in euro-zone peripheral nations, how could banks possibly do anything but slow the cash flow to corporations?