by business editor Trevor Sturgess

Banks are a "dragging anchor" on the economy and need to repair their reputations as well as their balance sheets, according to a senior Bank of England official.

Charlie Bean, deputy governor of the Bank of England and a member of the interest rate-setting Monetary Policy Committee, said in Kent that lending was not yet back to normal, despite an injection of Government cash.

Various measures had been taken to stimulate the economy and the reduction in sterling's value, some 20 per cent below where it was when the financial crisis started, was helping to boost net exports and encourage people to "substitute away from imports."

"But against that, there is the continuous dragging anchor from the state of the banking system which although it’s been stabilised by the Government’s measures, it’s not quite back to the normal level of operations and the supply of credit is somewhat restricted."

He accepted that businesses were complaining about the lack of credit or the cost of loans if they could get them.

"For a lot of businesses, it is the price they are having to pay for the credit as much as the avaiilability and in some cases they can’t even get it."

There was not a lot the Bank of England could do about it. "The Bank doesn’t have any direct influence over the banks, we don’t supervise them, we have no direct control over them."

But they met up periodically and "we can convey to them the messages we’re hearing from business contacts. We meet with them to better understand their lending policies, because that plays into the outlook."

He said Bank of England officials as well as politicians had reminded banks of the importance of restoring their reputations.

"I would hope they are getting the message that in terms of their longer term reputation, it makes sense for them to deal sensibly and responsibly with their clients.

"There is no doubt that there is a certain amount of dissatisfaction on the part of many businesses with the way they have been treated by the banks."