Oct. 25 (Bloomberg) -- Bank of England Governor Mervyn King defended the central bank’s measures to boost demand in the economy as lawmakers said it had failed to help boost lending to small and medium-sized businesses.
“I have told you before, and I will repeat it once more if you listen this time; we have not refused to do anything which the Treasury has asked us to do,” King told the Treasury Select Committee in London today after a question from Labour lawmaker George Mudie on the government’s desire to boost business lending. Committee Chairman Andrew Tyrie had to interrupt Mudie to allow King to respond.
The committee wrote to King this month, warning that policy makers risk putting the recovery in peril if emergency liquidity programs set up during the 2008 financial crisis are withdrawn too fast. Chancellor of the Exchequer George Osborne announced plans on Oct. 3 to ease the credit strains facing SMEs by using the proceeds of Treasury-bill sales to buy corporate bonds or packages of securitized bank loans.
At the hearing, King said the Bank of England is “working closely with the Treasury on schemes that will help SMEs through the existing banking system.” He also said there are some decisions on boosting credit that are best left to the government, rather than the central bank.
“I find it very peculiar that it’s the same people who are most worried about the powers of the Bank of England after the financial crisis, becoming bigger and bigger, who seem to be determined to push us into doing things which are properly your responsibility,” King told the committee.
MPC Close Call
The governor also said that while the Monetary Policy Committee “came very close to voting for asset purchases in September,” officials decided to wait another month to see if turmoil in financial markets subsided. “The volatility did not dampen down and so we followed through,” he said.
King said any monetary-policy measures “that will stimulate demand and spending in the economy will have helped SMEs.”
So-called quantitative easing “didn’t tackle directly the problem of bank financing to SMEs, it wasn’t designed to, but by helping the economy it will have helped SMEs,” he said.
On boosting lending to smaller companies, King said it would be best to use existing banks rather than set up a new institution.
“It would take a long time,” he said. “Given the way our bureaucracy works, I’d be very surprised to see anything set up within 18 months.”
“Only the banks are in a position to assess credit risk at SMEs,” King said. “What we have to do is find ways to add incentives for banks to lend.”
--With assistance from Svenja O’Donnell in London. Editors: Fergal O’Brien, Eddie Buckle
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