Business minister accuses BoE of holding back recovery

LONDON Thu Jul 25, 2013 12:24am BST

Britain's Business Secretary Vince Cable leaves after attending a Cabinet meeting at Number 10 Downing Street in London March 12, 2013. REUTERS/Andrew Winning

Britain's Business Secretary Vince Cable leaves after attending a Cabinet meeting at Number 10 Downing Street in London March 12, 2013.

Credit: Reuters/Andrew Winning

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LONDON (Reuters) - Business minister, Vince Cable, has accused the Bank of England of holding back economic recovery by imposing excessive financial burdens on banks and demanding they build up high levels of capital.

The central bank gained new powers in April to require banks and building societies to hold extra capital to make them less reliant on public support in the case of collapse, something banks oppose because it dilutes shareholders' short-term returns.

The Bank surprised markets last month when, a few days before former governor Mervyn King retired, it said two major lenders, Barclays and mutually owned Nationwide, fell short of a 3 percent leverage target and needed to set out a plan to get to that level.

The regulator did not give a deadline for this, leading some analysts to assume the requirement would be enforced at the end of 2013, in line with other new regulatory demands on capital, though it has since said Nationwide will have until 2015.

The Financial Times reported on Wednesday, citing sources, that Barclays was close to reaching a deal with regulators to comply with the new leverage requirement by December 2014, and that a confirmation was expected along with its annual results next Tuesday.

Cable was reported on Wednesday as saying that lenders had protested to him that the uncertainty created by the Bank had hurt lending - a view he shared in part.

"One of the anxieties in the business community is that the so-called 'capital Taliban' in the Bank are imposing restrictions which at this delicate stage of recovery actually make it more difficult for companies to operate and expand," the Financial Times quoted Cable as saying in an interview.

A Business Ministry spokeswoman confirmed to Reuters that the comments reflected Cable's belief that capital restrictions were one factor behind weak lending to small businesses, and that he would meet new Bank Governor Mark Carney in due course.

"Vince Cable's views on the lack of bank lending to small business are well known. Along with others in government, he wants to build a stronger economy that supports UK firms. He's keen to work with the Bank to achieve this," the spokeswoman said.

The finance ministry and the Bank declined to comment about the remarks.

However in setting a remit for the Ban's Financial Policy Committee, which makes overarching recommendations for bank stability, Chancellor George Osborne said in April that it was currently "particularly important" for the central bank to take account of short-term growth.

The Bank has said it instructed Barclays and Nationwide to raise capital in a way that does not affect lending.

Cable's comments come just weeks after outgoing Bank governor King criticised banks for lobbying politicians and trying to undermine the new regulatory framework.

The new bank governor, Mark Carney, told a reporter in jest on Wednesday that British banks needed to act with a bit more "sense and sensibility", the title of a book by novelist Jane Austen whom Carney had announced will feature on the new 10 pound note.

Carney was asked whether he felt "Pride or Prejudice" - another of Austen's works - about the performance of Britain's banking system.

"We're looking for a little bit more sense and sensibility thank you," he told Channel 4 News, with a broad smile.

(Additional reporting by Costas Pitas in London and Abhirup Roy in Bangalore; Editing by Ruth Pitchford, Alison Williams and Bernard Orr)

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