Coming on the same day that the EU has called for even more sweeping powers including the ability to seize failing banks, sack board members and impose haircuts on senior bank debt, this is an issue that appears no nearer a resolution.
Policymakers are essentially confronting two competing demands – if the UK economy is to return to some sort of normality, businesses and individuals must be able to borrow at reasonable levels, but governments are understandably keen to prevent the sort of irresponsible lending that contributed to the recent global economic downturn.
The Bank of England’s quarterly credit conditions survey revealed that the amount of capital available for lending had been ‘tighter’ since the Basel announcement in September, with lenders commenting that the rules would constrain net lending in the months and years ahead.
Banks also indicated continued difficulty in getting existing risk off their books amid weak demand in the debt markets.
Meanwhile the EU’s proposals for a new regulatory regime – to be in place by 2014 – are intended to ensure banks would in future be able to fail without endangering the wider economy but the prospect of additional regulation on this scale may well provide a further disincentive for banks to lend.
While the authorities’ moves to prevent reckless behaviour by the banks is understandable, they must ensure, as much as possible, that the small businesses and individuals – who did little to cause the crisis – are not the ones to suffer most.
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