We can't have it every way with the banks

A proposed deal by the coalition government to encourage banks to lend to small businesses has hit a hurdle. Loans of up to £200bn were supposed to result from the deal, but negotiations have stalled. The plan is known as Project Merlin.

What a disappointment if nothing comes of this.

Banks are apparently arguing that targets for lending to “weaker” businesses could break rules about decisions being made in the best interests of shareholders.

Shadow chancellor Ed Balls (new in the job), said: “At this critical time for our economy and for the prospects of a strong recovery, the banks should be playing their part in supporting small and medium-sized businesses.” He said the government was going easy on the banks. It strikes me that the government is trying to encourage the banks to lend more – but within sensible bounds.

The stumbling deal comes in the wake of news of large bonuses being paid by banks.

BBC business editor Robert Peston said it was "all a bit odd, since you'd think RBS, Barclays, HSBC and Lloyds would all be desperate to show that they're doing their bit to support small businesses and economic recovery - and take some of the sting out of the widespread criticism of the substantial bonuses they are set to pay."

The trouble is there are too many strings pulling in different directions:

• The taxpayer has a large investment in many banks and thus want banks to help the taxpayer.

• Banks are now encouraged to lend “sensibly” after some appalling lending pre-2008, but we want them to lend more (to both “weaker” businesses and higher risk individuals).

• Banks have to keep their best people, but when they pay large bonuses the people (well, the media) are in uproar.

• The banks have to store up some reserve money to cover emergencies so that the taxpayer doesn’t have to bail them out again, yet the taxpayer want them to lend out the money at the same time.

We can’t have it every way.