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Tighter banking rules will drain £1tn from financial system, study shows

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Jill Treanor
London Guardian
July 11, 2010

Britain’s biggest banks will warn the chancellor that up to £1tn is poised to be drained from the financial system, hampering economic recovery and depriving households and businesses of loans and other forms of credit.

The bank bosses wrote to George Osborne shortly after he took office are to meet him to express their concerns about the impact of regulatory changes which require banks to hold bigger capital cushions. These changes are coming at the same time that the Bank of England withdraws liquidity schemes designed to help banks during the financial crisis.

The banks, through the British Bankers’ Association (BBA), intend to tell the chancellor that when the Bank of England pulls the plug on these liquidity programmes some £400bn will be withdrawn from the UK’s banking system. The schemes were put in place to help get money flowing between banks after the credit crunch, but are due to end in 2012.

The banks have also calculated that demands by international banking regulators in Basle that they bolster their capital will require the UK’s banking industry to hold an extra £600bn of capital that might otherwise have been deployed as loans to businesses or households.

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This article was posted: Sunday, July 11, 2010 at 6:31 am

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