Responding to Vince Cable's announcement of a £1billion state-backed small business bank, Mark Littlewood, Director General at the Institute of Economic Affairs, said:
"This proposal will distort the allocation of credit and it is likely to adopt exactly the same mechanisms of government-backed securitisation that played such a large role in the financial crisis. The government should not be taking the risks from business lending that banks are not willing to bear themselves.
"Cable's government-backed business bank is designed to deal with the problems of small business credit that have arisen since the financial crisis. However, the bank is unlikely to be up and running until seven years after the early events of the crash and so it is unlikely to have any impact on the short-term problems faced by businesses as a result of those events.
"Government policy in this area is incoherent. On the one hand government is tying banks up in ever-increasing regulation so that they do not wish to expand lending, with the aim to prevent banks failing and becoming a burden on the taxpayer. On the other hand, the government is pursuing various initiatives that involve the government explicitly bearing the risks of loans taken out by individuals and businesses."
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