18 August 2010 The Australian Financial Review Letters to the editor Delivery by email: edletters@afr.com.au Dear Sir or Madam, Re: Opinion editorial - Payback time for bank support, by Dr Sam Wylie, 18/8/10, page 63 It is disappointing to see the Melbourne Business School uncritically repeat some of the misconceptions about Government support for the banks and to use this to call for greater Government intervention. Dr Wylie is right to claim that a combination of good management, good regulation and good luck helped Australia weather the global financial crisis.  The Government played a critical role in this, but not to do special favours for the major banks.   The deposit guarantee has arguably been of greater assistance to smaller banks, credit unions and building societies, stemming a flight of deposits to the major banks and reassuring the community that they have real choice across a wide range of deposit-takers.  The wholesale guarantee was needed to keep the playing field level for Australia when other countries guaranteed their banks.  But Government backing did not come without a price - $5.5 billion to be paid by banks into consolidated revenue over the life of the guarantee.  Finally, short selling bans were applied across the whole share market, protecting all investors from inappropriate speculation.   Dr Wylie also repeats a number of assertions that are not backed up by fact.  For example, while credit conditions are undoubtedly more challenging for small business, there has not been “substantial credit rationing” as claimed.  The value of new loans to small business, which was surging ahead of the financial crisis, growing by 26% in 2007, did experience a small fall last year, reflecting reduced demand and more prudent lending.  The most recent RBA figures, however, show new loans to small business growing again, despite continuing economic uncertainty.  Small business lending now accounts for nearly 30% of all business lending, up from 20% a year ago. Yours sincerely, Steven Münchenberg