Many small firms have given up on the banks, and this is threatening a crisis for the West Midlands, according to John Rider, who is regional chairman of the Institute of Directors. Unable to access finance, companies struggle to expand and create desperately needed jobs, he warned. His comments came as new IoD data revealed that businesses across the country are still having difficulties. One in three requests for bank finance in the first six months of 2010 was turned down.

Mr Rider said: “To some extent, our members have simply given up on the banks and what was a traditional service; they don’t bother applying any more. Once a manufacturing firm might be able to borrow at — say — 2.25% over the base rate to finance expansion or new machinery. Now, the banks are demanding an arm and a leg — and often a bit of your house too.

“If the Government does not get this sorted out, then its hopes for a private-sector-led recovery are in jeopardy. Globalisation is creating real opportunities for relatively small businesses, and the banks must provide a service to match their ambitions; we must increase our exports.

“Among all the political turmoil, it is too easy to forget that our global economic problems were triggered by a huge banking crisis. However, we must move on, and the banks need to take really positive steps to reform. If they don’t make the running, the Government will have to act swiftly.”

Mr Rider said the situation had largely remained unchanged for two years, and he blamed former Business Secretary Lord Mandelson for being taken in by bank bosses in the capital. He had visited Birmingham in November 2008 and been told that there were big problems locally, but he did nothing about it. “He did not get the message that the banks locally were effectively closed for business. Here we are, nearly two years on, and not a lot has changed.”

Mr Rider added: “The banks are now in much better shape, but they are not really acting in the public interest — supporting business is key. The challenge in the West Midlands is to create more jobs, but that is being put at risk. The best way to improve access to finance in the longer term is to get a lot more competition into the banking sector. Only when firms can choose more easily where they can place their business — and switch banks — will we have a banking sector that is better focused on the needs of business customers.”