In a speech to the Centre Forum think-tank in London the Liberal Democrat cabinet minister said building societies used to provide counter-cyclical lending but now government must intervene to boost lending as he highlighted last week’s funding for lending scheme.
He said: “The commercial banks largely abandoned locally based relationship banking in the decade before the recent financial crisis.
“There is now no institutional structure in place to offer countercyclical lending, particularly small and medium sized businesses, in place of the banks.”
Cable highlighted government guarantees as a way to boost growth alluding to the NewBuy and FirstBuy schemes already in place.
He added: “There are now some interesting ideas out there for government guarantees could trigger a significant volume of housing investment, replicating the recovery model of the 1930s and leading hopefully to a virtuous circle of new building lending to increased affordability and also increased private demand.”