Within the European Union the dominance of bank lending in the financing of small and medium sized enterprises (SMEs) is well-observed. However, in one country, the United Kingdom, exactly the opposite is the case. In the UK most SME funding is via bank overdrafts and credit cards.
Although it might be assumed that the roots of this significant difference lie in the historical, institutional, political, and cultural structure of the British banking system or in parallel explanatory factors in the UK SME population, the real mystery is why, since the nineteenth century, there appears to have been no significant change in British banks’ attitude towards providing long-term loan finance to SMEs. Indeed this “risk aversion” might have been expected to alter during the postwar period and the substantial expansion of consumer demand and expanded commodity production, but it did not. One reason, Lloyd suggests, may be the UK’s adherence to a liberal market economy structure.
This book explores not only how the formation of British banking structures during the industrial revolution produced such a relatively risk-averse structure compared to other European countries and in the United States, but also why this risk-averse business banking attitude has persisted to the present day. The book recommends a suite of changes necessary for British banks to provide a more balanced mix of financial provision to SMEs.
Introduction 1. British banks and the industrial revolution 2. Modern British banking 3. The other side: the culture of British SMEs 4. Banking problems for SMEs and alternative financial provision 5. Financial and political economic culture 6. Optimum financial institutional structures and SME performance 7. Implementing reform
Michael Lloyd is a Senior Research Fellow at the international affairs think tank, the Global Policy Institute, and a visiting fellow at Newcastle University. His books include The Euro and the UK (2009) and Federal Central Banks (coauthor) (2018).