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FSA relaxes rules in effort to boost lending

FSA Skywards Tower 480

The FSA has relaxed capital and liquidity rules for UK banks in an effort to stimulate more lending, according to the Financial Times.

The FT reports that banks will not have to hold extra capital against loans made under the Funding for Lending scheme in an effort to boost lending levels.

Andrew Bailey, head of the FSA’s prudential unit, has also confirmed to the newspaper that the FSA is relaxing overall capital rules with banks no longer forced to hold a risk-adjusted core ratio equal to 10 per cent of assets by the end of next year. Instead banks have been set individual capital targets which cannot be met by cutting lending levels, with the flexibility to grow lending as demand returns.

Bailey told the FT: “The goal is to avoid rapid deleveraging that would harm activity in the economy”.

The Funding for Lending scheme, launched in August, allows banks and building societies to exchange existing loans for Treasury bills, on which they will pay an interest rate of 0.25 per cent over the next 18 months. The Treasury hopes the scheme will encourage lenders to boost lending and cut rates on mortgages and small business loans.

Aldemore, Barclays, Hinckley & Rugby BS, Ipswich BS, Kleinwort Benson, Leeds BS, Lloyds Banking Group, Monmouthshire BS, Nationwide BS, Principality BS, RBS Group, Santander and Virgin Money have all been confirmed as participants in the scheme.

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. Rob Derry (Brunel Mortgages & Loans) 10th October 2012 at 10:01 am

    It’s a start, but what really needs to happen is the MMR needs completing. It doesn’t really matter what rules they put in the new MCOB, but the market needs some certainty. Certainty is what we don’t have while this lengthy consultation continues.
    I appreciate that the FSA want to get it right and are taking the opportunity that the lull in the market has given them to do so, but lenders are scared to innovate in case a product they design now is effectively outlawed by the new MCOB. The uncertainty has led to the self employed, interest only borrowers, borrowers with a poor credit history and many other people being unable to get a mortgage.

    Sometimes a bad decision is better than no decision.
    So let’s conclude the MMR and give the market the certainty it needs to go forward. It’s not possible to play the game if you don’t know what the rules are.

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