The UK isn’t saying who got emergency loans, while the US battle over transparency grows

Financial disclosure.
Financial disclosure.
Image: Reuters/Phil Noble
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Politicians from London to Washington agree: small businesses need billions of dollars of government support if they’re going to survive the coronavirus pandemic. But the need for transparency is a much less settled matter. Britain refuses to name recipients, and how much they’re getting, while a fight over disclosure is under way across the Atlantic.

“We recognise that there is a general public interest in the disclosure of information, as greater transparency makes Government more accountable,” the British Business Bank wrote in a letter to Quartz, in response to a Freedom of Information Act (FOIA) request about the Coronavirus Business Interruption Loan Scheme (CBILS) that it manages. “We consider that the public interest in favour of disclosing this information is outweighed by the necessity to protect commercial interests.”

While it’s not naming recipients, the UK-owned development bank said it will, sometime in the near future, provide information about the amount of emergency funding each lender has made available to help small businesses weather the coronavirus disruption.

In the meantime, a firestorm is brewing in the US. More than $500 billion has been shoveled out through the government’s Paycheck Protection Program (PPP) that provides forgivable loans to smaller enterprises. Controversy erupted when it emerged that large, publicly traded companies likes Shake Shack had accessed the borrowing (the burger chain and others have since returned the money).

Calling out recipients is a delicate matter. Small enterprises may not be used to public scrutiny and could be reluctant to accept much-needed aid if they know that information could be publicized. At the same time, transparency can help ensure that taxpayer money goes where it is supposed to. Borrowers who legally qualify but don’t fit the spirit of the program—hedge funds or small businesses owned by wealthy families—might avoid exploiting government support if they know their names will be outed. Public scrutiny could help find flaws in the program that can be fixed for later iterations.

Governments have been willing to provide information about the broad contours of the amount of loans made, but that’s not enough for deeper forensic research to ensure that minority groups and women-owned enterprises haven’t been overlooked by the government support.

How much transparency is too much transparency? Mick McAteer, co-director of the policy group Financial Inclusion Centre in the UK, said naming individual firms could be destabilizing. He suggested that an independent commission could report back on how the loans are being used, and that data should be collected showing sector and regional breakdowns of the lending that was provided. (The Cares Act legislation in the US includes a Congressional Oversight Commission.) Data could be collected to determine whether vulnerable groups of people had been excluded.

“There’s a way of stopping abuse without compromising the integrity and position of the receiving company,” said McAteer, a former non-executive director at the UK’s Financial Conduct Authority. “The best way to do it is to have transparency on the banks.”

Overall, the biggest concern in the UK has been that money wasn’t flowing quickly enough. Loans made through CBILS have 80% government backing, but even that 20% of skin in the game may have been enough to make banks wary of extending loans during the worst economic downturn since the Great Depression.

As pressure grew to speed things up, the government rolled out the Bounce Back Loan Scheme (BBLS), which has full taxpayer backing if the loans default. Some £14 billion ($17 billion) has been lent out through the Bounce Back program as of May 19, about double that of CBILS. The Treasury has published broad aggregate information on the amount of lending made available.

In the US, meanwhile, a full public record seems inevitable. Florida senator Marco Rubio, one of the architects of PPP, said the names of the recipients will be made public eventually, and president Donald Trump has also said he would be fine with releasing the information. Five media companies—including the Washington Post and Dow Jones—are suing the Small Business Administration, the agency handling the program, to get the names of companies that took the loans. The lawsuit says the agency hasn’t provided records in response to the companies’ FOIA requests.

Which country’s approach is best will probably only be clear in hindsight. But so far it appears that transparency—even as governments unleash spending not seen since World War II—has been a lagging priority.