Lloyds Banking Group PLC (LSE:LLOY) and other high street lenders have begun debanking hundreds of defence companies as they become more strict on their internal ethics policies, sparking fears that the UK's national security may be at risk.
Santander and Lloyds were named as lenders which closed the accounts of around 300 "public administration and defence" companies throughout last year, reports from the Telegraph revealed on Wednesday.
Other leading lenders failed to provide a breakdown of their debanking statistics, indicating the figure may be higher.
While some of the accounts were removed for prolonged inactivity, others were cut due to the ethical concerns surrounding working with a weapons company.
The findings sparked a backlash from both MPs and the defence industry.
Treasury Committee chairman Harriett Baldwin said: “We cannot have organisations in this country systematically debanking legitimate firms or industries because their board turns its nose up at their line of work.
"If their work is legal then they should be able to access a bank account.”
The report added that generally small and medium-sized businesses were facing a banking crisis due to unsupportive policies of the lenders.
“Confidence amongst SMEs in accessing finance has fallen and acceptance rates for business credit has lowered significantly,” the report said.
"This difficult small business environment is disincentivising risk-taking, innovation and, potentially, growth,” it warned.
Personal guarantees, where business owners have to put up collateral for a loan, was a specific problem, said the report.