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Is Basel III responsible for holding back SME growth? 

January 11, 2016

Conrad Ford, bobsguide

The Basel III accords set out a far stricter regulatory capital framework for banks, to increase the resilience of the global financial system after the unprecedented events of the 2008 credit crunch. At the time Basel III was debated, a number of technical commenters expressed concerns that it could overcorrect the mistakes of its discredited predecessor Basel II, in particular by being punitive on lending to small firms – which are often described as the engine room of economic growth.

Now, a few years on from Basel III, in our white paper “Small business finance: Life after the overdraft”, we have carried out a UK survey to see if Basel III is indeed showing a negative impact. Worryingly, we have found that, in the UK at least, bank overdrafts to small firms are indeed falling at a dramatic rate, with severe knock-on effects for small and medium enterprises (SMEs) all over the country. The UK is fortunate to be perhaps second only to the USA in terms of the diversity and maturity of its alternative finance market, which has likely cushioned the effects of this withdrawal of bank lending to SMEs. Our findings could have far-reaching implications for those parts of the world that don’t have the luxury of an equally diverse alternative finance market to cushion the blow of Basel III and its effect on bank lending. Read more

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