U.K. Business Secretary Vince Cable said Monday that he would like to see banks exercise more restraint on paying dividends and bonuses, and focus instead on lending to companies.

"There clearly is a choice between paying out cash in bonuses and reinvesting it in new lending," he said at the introduction of a consultation paper aimed at boosting the economic recovery by addressing companies' funding problems.

Cable said the problems with bank lending to firms could worsen and financial institutions need a combination of carrots and sticks to get credit flowing. Sanctions could include taxing banks' profits, he said. The government could widen loan guarantee arrangements for banks or support a bundling of small-scale enterprise loans which could be sold in the market.

The consultation paper said the government is interested in feedback on how it might be able to help develop securitization markets such as the former U.S. Term Asset-Backed Securities Loan Facility and also covered bond guarantee schemes to support lending. The Talf, which was closed last month, aimed to encourage issuance of asset-backed securities as a way of stimulating banks to originate business and other loans.

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