Pictured above: John Rider

Many small firms have given up on the banks and it is threatening a crisis for the West Midlands, according to Institute of Directors' regional chairman John Rider.

Unable to access finance they struggle to expand and create desperately needed jobs, he warned.

His comments came as new IoD data revealed that businesses across the country are still having difficulties.

One in three that had applied for finance in the six months covering January to June was declined by its bank.

And there was evidence that lending criteria had become more restrictive with regard to the amount of security required.

Commenting on the survey results, Mr Rider said it largely mirrored one recently conducted in the West Midlands.

He said: "To some extent our members have simply given up on the banks and what was a traditional service. They don't bother applying any more.

"Once a manufacturing firm might be able to borrow at say two and a quarter over base to finance expansion or new machinery. Now the banks are demanding an arm and a leg … and often a bit of your house too.

"If the Government, together with the banks, does not get this sorted out then its hopes for a private sector-led recovery are in jeopardy.

"Globalisation is creating real opportunities for relatively small businesses and our banks must provide services to match their ambitions - we must increase our exports.

"Amongst all of the political turmoil, it is too easy to forget that our global economic problems were triggered by a huge banking crisis. We, however, must move on and our banks have to recognise that they need to take really positive moves to reform - if they don't make the running the Government will have to act swiftly."

Mr Rider said the situation had largely remained unchanged for two years and he blamed former Business Secretary Lord Mandelson for being taken in by bank bosses in the capital.

He had visited Birmingham in November 2008, was told there were big issues locally and did nothing about it. "He did not get the message that the banks locally were effectively closed for business - here we are nearly two years on and not a lot has changed."

And Mr Rider added: "Banks are now in much better shape but they are not really acting in the public interest - supporting business is key.

"The challenge in the West Midlands is to create more jobs but that is being put at risk.

"The best way to improve access to finance in the longer-term is getting a lot more competition into the banking sector. Only when firms can choose more easily where they can place their business and switch banks will we have a banking sector that is better focussed on the needs of business customers.

"But in this region we cannot afford to wait - business confidence is fragile - we have some very talented people in the banking sector in the West Midlands and we need them to provide strong leadership to influence Government to enable realistic reforms."