Rules on bank reserves ‘have not hit loans’

Andrew Bailey: Lending fall not down ot demands on banks to preserve cash. Picture: Getty
Andrew Bailey: Lending fall not down ot demands on banks to preserve cash. Picture: Getty
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DEMANDS on banks to preserve more cash have not been responsible for any fall in lending, a Bank of England official insisted last night.

Andrew Bailey, a deputy governor at the new Prudential Regulation Authority (PRA), said there were worries that a need to bolster reserves would hit lending. “I want to reassure you, that is not the case,” said Bailey. He added the PRA was in talks with the banks about how they fill a £25 billion hole in their balance sheets, although they have accounted for half that sum. Royal Bank of Scotland and Lloyds say they can meet any shortfall without raising new equity.

“Some commentators have written that this means RBS and Lloyds have been let off the hook,” said Bailey. “I have to tell you that is not true, it was always envisaged that both banks would achieve their capital enhancements by restructuring their balance sheets without reducing their lending to the UK economy.” Both banks have been selling assets to raise funds.

Bailey noted that net lending was broadly flat in the second half of last year against an expectation prior to the launch of the Funding for Lending scheme (FLS) that it would decline over last year and this.

“We have been clear that the design of the extended FLS particularly encourages lending to SMEs in determining access to the FLS. Incentives to lend to SMEs are therefore in place, no doubt about that. But we cannot promise results will follow as night follows day, because there is more to it than that.”