Treasury warns governor King over bank lending
Bank lending to UK businesses and individuals is under threat because of new regulations, according to the chairman of the UK’s Treasury Committee, Andrew Tyrie.
In a letter written by Mr Tyrie to the Bank of England and the Financial Services Authority (FSA) he asks them to investigate the implications of new regulations drawn up under the Basel 3 agreement.
Mr Tyrie warns that the eurozone crisis is making it harder for banks to raise funds and that coupled with these new regulations which means investors are putting banks under more pressure to hold more capital, lending is being pressurised and may damage the recovery. He also said that emergency funding that was advanced during the last financial crisis is being withdrawn, adding to the pressure on banks.
The banks are being out under pressure even before the agreements under the Basel 3 agreement are scheduled to come into force. The idea is that banks will be forced to hold a higher proportion of “liquid” assets that would be easier to sell in the event of another financial crisis.
Mr Tyrie’s letter, dated October 20th, was sent to the governor of the Bank of England, Mervyn King and Hector Sands, the chief executive of the FSA.
Mr Tyrie said that these combined influences meant that there has been a seven per cent fall in bank credit in the year to August and suggested that the Bank of England should look at other options to relieve the liquidity squeeze, though he admitted that in private the bank may well already be doing so.
Mr Tyrie said in the letter: "The squeeze on bank liquidity is running the risk of continued credit contraction setting back the prospects of economic recovery.”
And the committee warned that the Bank of England’s latest round of quantitative easing (QE) would “do little” to increase funding for the banks.
His comments come as governor King is set to sit before a Treasury Committee tomorrow to explain the thinking behind an answer questions on the banks decision to introduce a further £75 billion into the UK economy through QE.
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