Regulation must not stifle lending

Responding to Lord Mandelson's annual Mansion House speech, BBA chief executive Angela Knight said she welcomed the First Secretary of State's comment that the economic recovery could be threatened if banks face new regulations, combined with tighter capital and liquidity requirements, from different directions at the same time.

Speaking at Mansion House, Lord Mandelson said: “...Of course we need to make our banks safer, and the Government made early proposals for reform. However, I do think that we need to guard against any unintended consequences from the new capital, liquidity and leverage requirements which are being proposed from different directions. As the Prime Minister has stressed, these need to be fully internationally coordinated. New rules need to be implemented in a way, and on a timeframe, that does not create uncertainty now and which does not put at risk the ability of the banking system to fund the credit needs of the global economy as we recover. At the moment, the current low demand for credit is masking the issues concerning credit supply. But as the recovery strengthens, we must avoid banks shrinking their balance sheets to meet regulatory requirements at the expense of lending to the viable businesses that we need to drive the recovery.”

Mrs Knight said that banks were already acting to improve their own controls and to strengthen their balance sheets. She agreed with Lord Mandelson that action on regulation needed to be co-coordinated and action taken in step internationally.