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The banks: at our service

THE country does not need any more mixed signals from the Government about how it intends to deal with the banks. Yet it appears that, where lending to business is concerned, there is more than one hymn sheet.

The Tanaiste says that she and her officials are looking at the feasibility of a State guarantee scheme for bank loans to small- and medium-sized businesses.

This aspiration appears to contradict the Department of Finance's approach, as stated by a senior official two weeks ago. The view then was that the taxpayer could not be expected to further bail out banks which had already benefited from liability guarantees, capital injections and the National Asset Management Agency strategy.

With very good reason, the department has expressed its concern that a poorly thought-out guarantee scheme could lead to banking executives lending without adequately assessing the risk.

Yet, even as increasingly self-assured banks begin to nudge interest rates upwards again, complaints are multiplying from businesses struggling and still being refused credit.

The minister must share the public concern about this. He was the one who justified the State's €440bn guarantee by pointing to the €25bn in deposits which subsequently flowed into the Irish banks, restoring some liquidity.

As the banks see it, their damaged balance sheets will not begin to recover until the economy begins to recover.

At the same time, the Government, businesses, and workers all want to see the banks play their part in helping to revive the economy.

The head of the European Central Bank summed up, in quite simple terms, what we now expect from the banks and the people who run them. That is, they must recognise that the State aid they receive is not for themselves, but to help them serve the economy.

The banks are reluctant to free up precious funds that could save firms and jobs and an unresolved debate seems to be going on within Government about the best way to get the money flowing again.

In the words of Jean-Claude Trichet, the banks need to be reminded that they are there to serve the economy, not the other way around. And the Government needs to remember exactly who is boss.

Irish Independent