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.