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Extending Lending: The Case for a State-backed Investment Bank

David Merlin-Jones, February 2012

In this report, David Merlin-Jones argues that the only way to revive lending permanently is to go beyond restructuring commercial banks. Britain needs a new state-backed investment bank, described here as the ‘Enterprise Bank’ (EB). This would be able to raise cheap credit in the financial markets by using the UK’s AAA credit rating and could pass this on to borrowers. It would lend to any economically viable and creditworthy SME rejected by commercial lenders. The report draws on three precedents: KfW from Germany, the SBA from the US and Britain’s own post-war state investment corporation, the ICFC. Despite working in different ways, all three show how successful such organisations can be.

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