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Tyrie fears liquidity squeeze is thwarting lending

Treasury select committee chairman Andrew Tyrie has written to the FSA and the Bank of England over concerns that the squeeze on banks’ liquidity is affecting their ability to lend.

He warnes that stringent regulatory requirements are damaging banks’ ability to support the economic recovery.

In a letter to FSA chief executive Hector Sants, Tyrie says the TSC wants reassurance that the regulator is carefully examining the effects of post-crisis regulatory action and market responses to it. He says while Basel III requirements are yet to come into force, the financial markets are already monitoring banks’ performance against this standard, putting pressure on them to take early action.

Tyrie says: “Partly as a result, banks are competing aggressively for stable sources of funding such as retail deposits. This has added to their caution in lending. These pressures are now compounded by the effects of the euro area sovereign debt crisis, which has made it harder still for banks to find stable funding.”

He adds that while quantitative easing may be good policy, it does little to increase the supply of liquid assets to banks.
Anand Associates managing director Bhupinder Anand says: “Getting credit for worthy clients is more difficult than ever, which is not helping recovery.”

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