Speaking at the Future of the Financial System conference in Westminster last week, Cable said taxpayer-funded banks have been allowed to carry on operating with only limited Government intervention.
He said: “In the Government’s own strange way, capital has been put into banks but the Government has kept an arm’s-length distance from them and allowed them to operate as commercial banks.
“This has utterly perverse consequences. There are no incentives for nationalised banks to increase their lending and this has contributed to the credit crunch.”
Cable said the Government should have temporarily nationalised the banks that failed and taken greater control of their operations, as the Israeli government did in the 1980s. He insists that this would have ensured that new lending picked up.
He said: “Many of us are puzzled that the Government has not followed that model n the UK.”
Cable dismissed the argument that tougher control over nationalised banks would threaten London’s global proposition.
He said: “The problem is that the banks are being rescued by the UK, they are not being rescued by the globe, so the Government should serve UK taxpayer interests and that is something it is trying hard to avoid.”
Bill Warren Compliance managing director Bill Warren agrees that nationalised banks should be doing more to serve taxpayer interests.
He adds: “What I do not understand is that despite the Government establishing a separate bank to take on toxic assets, banks are still so reluctant to lend. I understand that banks have to be cautious about lending to businesses at the moment but I cannot see why there is not more money being given out on the mortgage side.”