Accusations against RBS warrant an independent review | Larry Elliott

Lawrence Tomlinson’s allegation that RBS deliberately wrecked small businesses to make a profit is a serious one

Banks lend money hand over fist during booms and get stingier when times are hard. That’s the way it always has been and – unless they are forced to do otherwise – it’s the way it always will be. So why the fuss about Royal Bank of Scotland and its lending to SMEs?

Two reasons, really. RBS is 81% owned by the taxpayer and is vulnerable to the charge that it is not doing all it could to grease the wheels of investment-led recovery. And, according to a report by Lawrence Tomlinson, entrepreneur in residence at the department of business, it has been forcing viable businesses with short-term cash flow problems into its corporate restructuring arm in the hope that it can foreclose and then sell off the property assets at a healthy profit.

RBS has, perhaps understandably, become more risk averse. Its loan book was heavily weighted towards commercial property, demand for which has collapsed since 2008. Opportunities to lend to a retrenching manufacturing sector have been few and far between. The government could have used its stake to force the bank to lend more to SMEs but has failed to do so.

The sin of commission is harder to prove than the sin of omission. The relatively modest number of corporate insolvencies in this recession compared with the toll in the early 1990s suggests that banks have shown forebearance towards businesses in trouble. But the accusation is a serious one and warrants an independent review. If Tomlinson has a smoking gun, now is the time to produce it. © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

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