KEY POINTS:
Prime Minister John Key yesterday said he was prepared to look at a proposal from the banks for a joint fund with the Government to inject capital into firms which are temporarily stressed but fundamentally sound.
It is intended to help businesses which have reached the limit of
their ability to raise debt and need an injection of equity.
In terms of security it would rank behind bank debt but ahead of existing shareholders' equity. It is intended to be transitional, bridging funding only.
Outlining the idea to the full session of the Jobs Summit, investment banker Rob Cameron said that inevitably the devil would be in the detail.
The scale envisaged would involve the banks and the Government each contributing something like $1 billion to the fund which, given their strong credit ratings, could then be boosted to perhaps $10 billion with debt.
One attraction for the Government, acknowledged by Mr Key, was that it would put it at arm's length from corporate bailout decisions.
The banks' idea came after Reserve Bank governor Alan Bollard had earlier in the proceedings warned them "not to underestimate the amount of corporate anger" directed at them these days.
The banks had reacted to the global crisis by being very conservative, "as we would want", he said. "But they have been through some good times and made very good profits."
It was up to them to pass on wholesale interest rate cuts and not to impose unnecessarily onerous conditions on borrowers.
Dr Bollard explained later that the complaints he was hearing from businesses related less to the interest rates they were being charged but the tough terms and covenants now being attached to loans as banks became highly risk-averse.
The bankers emphasised that they were still lending and were committed to continuing to do so to creditworthy borrowers.
Collectively they had lent $3.6 billion to businesses in the last quarter of 2008, supported by $4 billion of extra funding from their Australian parent banks.
The Jobs Summit also advocated moves to make it easier for medium-sized companies, and local bodies, to access the retail corporate debt market.
SOUND INVESTMENT?
* Government and banks place cash into a fund, suggested at $1 billion each.
* The fund could then be boosted with borrowing because of both parties' strong credit ratings.
* Businesses could then borrow to help them beat short-term problems.
* The fund would be separate from the global trend for government "bailouts".
