Regulators urged to avoid negative impact with new rules

A SENIOR MP has urged financial regulators to take action to ensure new regulations on banks do not have a negative impact on the economy.

In letters to the governor of the Bank of England and the chief executive of the Financial Services Authority, Andrew Tyrie warned that new liquidity rules and market pressures could lead to a reduction in credit available to support the recovery.

Accepting the need for banks to be “weaned off” the emergency support put in place during the credit crunch, he claims “attempting to do it too quickly, in a hostile international economic environment, could risk setting economic recovery back for benefits that are unclear”.

Mr Tyrie, chairman of the Treasury Select Committee, has called for the Bank of England’s Financial Policy Committee, a new body set up in the wake of the credit crunch, to take a closer look at ways of improving liquidity.

The letters warn that, while new rules designed to force banks to increase capital levels on their balance sheets are not due to take effect until 2015, markets are already judging banks against those standards forcing them to take action early.

The Eurozone crisis, he argues, is also making it harder for banks to find “stable funding”.

He writes: “The squeeze on bank liquidity is running the risk of continued credit contraction, setting back the prospects of economic recovery.
“Quantitative easing may be good policy but it does little to increase the supply of liquid assets to banks.”

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