Will banks be the Bad Boys of recession?

Banks are wandering into all sorts of sticky territory at the moment as the country enters recession.
My take is that they are in real danger of looking like the hard-faced bad boys who shut their doors to suffering.
Just a couple of weeks ago a nuclear-strength bailout from the taxpayer was needed to bring the banks back from the brink of collapse – a collapse that was largely the consequence of their own recklessness, according to critics.
Since then, they’ve come under pressure to pay back that taxpayer generosity by getting back into the habit of lending and taking a more lenient line with small firms which run into cash troubles.
But is that going to happen?
In an ideal world, banks would simply like to pull up the financial drawbridge and stop doling out so much money because they have got so much toxic debt to clean up.
Indeed, there’s mounting anecdotal evidence that they’re trying to do just that.
Yesterday, I was talking to Miles Templeman, the boss of the Institute of Directors, about the impact the financial crisis has had on business.
He told me at a meeting in Nottingham: “A lot of companies have told me that their basic overdrafts have had costs increased and loans that were about to be granted have been blocked for no good reason.”
This is serious stuff, because it increases the risks businesses may either fail to grow – or just fail. Depriving business of its financial lifeblood adds up to a longer recession.
Miles Templeman agrees that banks have got themselves into a real financial pickle – but NOT because of loans to everyday businesses in Nottinghamshire and beyond.
This isn’t the ideal world banks would like it to be, and Templeman’s point is that banks have got to take some risks. Those that do will be praised, those that don’t may end up being named and shamed according to Templeman.
Gordon Brown, Alistair Darling and Peter Mandelson (the new business minister) are clearly having a tough time persuading banks to commit on paper to a more lenient approach to struggling businesses.
Some might think banks holding purse strings hold all the aces in this unpleasant game of high-stakes political poker.
That may have been true in the past, but I’m not sure it is now.
If a perceived hard-line on business lending brings forth a wave of stories about business failures, the clamour for direct political interference in bank lending policies will become deafening.
Miles Templeman says Government interference in banks is the last thing we need. Neither politicians nor civil servants know how to run them, and there is no sense in making banks throw good money at bad businesses.
This is the banks’ point: there will be business failures during the coming months because there are bad businesses out there. Giving bad businesses more money simply ensures the losses are greater.
At issue is what constitutes a bad business. A company selling something no one wants to buy may be a bad business. A company which can’t get the working capital from the bank to fund production for a confirmed order isn’t.
So what do you call a bank whose lending policy chokes a fundamentally sound company? We may well find out before too long.