Cheap Working Capital For Small Business

Over at Oikonomics, we are discussing how to balance the relative importance of what happens inside the bubble of the City with what happens in the 'real' economy.

From a regulatory standpoint, the credit crunch should have taught us to acknowledge the links between the wholesale and retail markets and regulate them both as part of a whole.

Excessive investment banking fees and bonuses are a direct result of a regime that reserves the job of matching investment funds and opportunities to a privileged few. "Democratising" the financial markets, or opening them up to public participation via simple, transparent products and 'thin' intermediaries who charge proportionate fees could break this stranglehold and result in a more inclusive, reliable financial system.

Artificially separating consumer and small business credit from the FSA's narrow remit has also allowed giant banking groups to 'shade' their unduly high margin downstream distribution activities from regulator sunlight, even though they feed the wholesale markets for CDO's etc. Left to fend for itself as 'independent', the OFT has not had the clout to constrain the likes of high bank charges and  card interchange fees (it's failure to clean up mortgage lending became so embarrassing it lead to the creation of the FSA's 'high street firms' division). Even now, lending to the 4.3m small businesses in the UK is pretty much unregulated and banks are getting away with all the old tricks in that market. Yet improving SME access to affordable working capital must be a top priority if we are to grow our way out recession.

So these things should all receive the same regulatory sunlight as the mis-selling of endowments, mortgages and payment protection insurance. Limiting bank margins to appropriate levels in the 'forgotten' markets would encourage competition from simple low cost products distributed by 'thin' intermediaries. Again, this would result in a more inclusive financial system and cheaper working capital for small business.