Developing regional stock exchanges may "fragment" liquidity and narrow the pool of investors available to small and medium-sized businesses (SMEs), a Treasury Green Paper published today says.
The joint consultation paper, published with business secretary Vince Cable, says the Government is interested in views on regional exchanges and how they could be made to work successfully.
But it says it also interested in alternative ways of increasing local sources of finance, such as via the so-called Business Angel scheme.
"Some commentators have proposed regional stock exchanges to help develop regionally focused sources of business finance," the paper reads. "Such an approach might, however, fragment liquidity and narrow the pool of investors available to each SME."
Cable has previously pointed to regional exchanges as a way of helping SMEs attract capital and avoid the cost of listing on AIM or the LSE. Manchester and Edinburgh have both previously hosted trading centres.
The Green Paper outlines proposals designed to ensure UK businesses have access to capital, whether they are up-and-coming companies or established firms looking to expand.
Banks in particular are set to come under renewed pressure to increase lending to small firms.
In an interview with the Sunday Times, Cable suggested dividends and bonuses could be a target as part of a "carrot and stick" approach to boost lending.
The paper also sets out proposals for increasing transparency in bank loan applications and increasing competition between banks and other financial institutions.
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