SME Supporting Factor– Oral Question

Los Angeles

Europe’s SME’s, including in my own constituency of Wales, have shown remarkable resilience in times of recent financial troubles, but now need capital to fuel their expansion and growth.

In much of the regulation that was negotiated during the aftermath of the financial crisis there was an emphasis placed on higher capital requirements for credit institutions across the board, however, we sought, where possible, to minimise the impact that this would have on lending to the real economy.

Part of these measures included the SME Supporting factor which was intended to provide an incentive to banks to lend to SMEs as they would receive a slightly lower capital charge for this type of lending.

However, the EBA report on how this has been implemented suggests it is having little impact.

I quote -

“SME bank lending has suffered a significant backdrop in volumes, from a peak of EUR 95 billion in mid-2008 to approximately EUR 54 billion in 2013/2014. Bank lending to larger corporates, on the other hand—after experiencing stronger increase before 2008, followed by a decrease—has already recovered to its 2003/2004 pre-crisis volumes.”

The analysis questions the effectiveness of the SME supporting factor. However I do not think it is fair to look at this factor in isolation as other factors effecting lending such as reduced demand and confidence amongst SMEs themselves also have to be taken into account.

Both anecdotal evidence from my own constituency in Wales and data analysed by the Bank of England, suggests that 77% of SMEs that have applied for bank loans have received them.

I am concerned that the EBA only looks at the level of capital supplied as opposed to the level of capital requested and therefore its conclusions should be treated with a healthy level of scepticism.

In addition to the questions outline in writing, can the commissioner explain how DG FISMA is working with DG GROW to look at wider confidence issues in the SME sector and bear these measures in mind when reviewing the SME supporting factor?

How will the conclusions of the cumulative impact assessment be used to re write existing legislation to ensure that we have the capital we need to finance the EU economy?

Will the Commission be bold enough to not just extend small measures like the SME Supporting Factor but introduce a sea change in the regulation?