Is Royal Bank of Scotland wrecking small businesses?
A committee of Members of Parliament accused the bank of deliberately forcing small businesses into liquidation, and making a profit with this process.
Small businesses which had loans from the bank would be looked at by the bank to see if they could be rescued from their problems; or could be “turned around”. If the decision was that such a turn around was not likely, then the business would be removed from the main bank and placed in a “Global Restructuring Group”. Then the business would be forced into liquidation, presumably by calling in the bank’s loans.
The bank could then buy the business at a bargain price, as the business would be seen as bankrupt. The bank could then sell the business on at a profit; and some entrepreneur would get a good deal. As to what happens to the business next was described as “opaque”.
A possible defence for the bank is that the government’s insistence on large reserves to be held by the bank to avoid another financial crisis, implies reducing risky loans. However the Bank of England has rejected this defence, claiming that there is no justification for “predatory restructuring”.
The right level of reserve for a commercial bank is disputed by economic experts. But the opaque nature of this bank’s decision making is clear. On what criteria does a business with bank loans facing difficulties get placed into a Global restructuring Group? Who decides? Is the small business a partner to this decision making, or not?
These are difficult questions for the bank, but it has many years of experience in allocating loans. Indeed making loans is it’s central business! All this argues for even closer control of banks.