Bank lending: in with the new When it comes to banking, innovation has become a dirty word. In its name we have been presented with all manner of ways in which the industry can either rip off its clients or misunderstand the risks that it is running. Since the financial crisis, there has been a political and regulatory push for a return to plain vanilla banking. New entrants to the industry sell themselves on a back-to-basics approach. But changing regulation and the push for a safer banking system make some innovation a necessity. A new Barclays arrangement with BlueBay Asset Management, announced this week, is a good example. The two will combine to offer so-called unitranche loans to medium sized businesses, largely but not exclusively those backed by private equity. The borrowers get a single loan, potentially more than they could have borrowed previously, at a single rate. Barclays and BlueBay lend jointly but BlueBay takes the greater risk - coming second in the case of default - and gets a higher return. Barclays, which like all banks is under pressure to increase lending and simultaneously reduce risk, gets to limit the risk it runs on business loans. This sort of arrangement, which brings more diverse lending sources into the corporate funding mix, is becoming increasingly important in Europe. In the US, banks account for less than one-third of corporate lending. In Europe the figure is more than two-thirds, so diversification is a must. Add to that the continuing process of European bank deleveraging - according to data from Royal Bank of Scotland, bank loans to non-financial companies have fallen by €333bn since May 2012 - and there is a funding gap to fill. Asset managers such as BlueBay are going some way to filling the gap, as are the corporate bond markets. Swallow any scepticism of banking innovation you may have. More is on its way.