Darling to meet banks about borrowing costs

Britain's Chancellor of the Exchequer Alistair Darling leaves 11 Downing Street in London June 29, 2009.

LONDON (Reuters) - Chancellor Alistair Darling is expected to meet with some of the major banks on Monday to express his concern at borrowing costs, especially for small and medium-sized companies.

He is expected to ask banks individually about lending levels and credit charges after figures appeared to show borrowing costs are going up when interest rates are at record lows.

"I am extremely concerned at what the banks are doing for the small and medium-sized companies," he told the Andrew Marr show on Sunday, when asked if he was likely to be calling in the banks the following day.

"What companies are being charged does seem to have gone up relative to what banks are actually having to pay because of the fact that we have very low interest rates," he said.

He said the government had not pumped billions of pounds of taxpayers' money into the banks, preventing a near collapse of the financial system, as "some sort of charitable act" but in an attempt to keep the economy moving.

The government is a major shareholder in two of the country's biggest banks, Lloyds and Royal Bank of Scotland.

He said he wanted banks to rebuild their balance sheets, "but at the same time because of the particular circumstances we are in now ... we also need them to lend money."

"That is why we recapitalised them to do that. That means they have got to live up to the promises they made.

"That is why we will be going through with each individual bank asking them why is it that at a time when the cost of borrowing is coming down, it would appear that the cost to small business appears to have gone up."

Darling signalled his intention to meet banks last week, saying it would be in the next couple of weeks. The Treasury would not confirm whether the talks would now take place on Monday.

But Angela Knight of the British Bankers' Association said the main numbers show banks are lending significantly more to small businesses.

She blamed the lack of capacity in the wholesale market for pushing up bank costs.

"On the back of that, because we now have to hold twice as much capital as we did before the recession and indeed twice as much as the international average, that means we also have to hold more money," she told BBC radio.

"You cannot hold it and lend it at the same time. Complex picture."

(Reporting by Avril Ormsby, editing by Will Waterman)