Knight's warning over lending

ANGELA Knight, chief executive of the British Bankers Association, last night warned that new rules on capital and liquidity would lead to "much higher cost of overdrafts to businesses" as lenders struggled to implement changes.

In a speech to a BBA-hosted seminar at the British Embassy in Paris, Knight said the transition period for the new rules was "very critical indeed" and that the "myriad of technical changes" banks needed to bring in would have a "significant impact" on lending and access to wholesale markets.

At the weekend, the Basel committee announced an agreement on the minimum capital that banks will need to hold to comply with Basel III, the first update to international banking rules since the economic crisis.

Knight said the rules on capital, which require banks to boost core tier one equity from 2 per cent to 4.5 per cent, was a "very important part" of the Basel agreement but warned that the changes needed to be monitored at each stage as they come into force in order to prevent an economic relapse. Basel said the minimum capital requirements will be phased in from 1 January 2013 and take full effect on 1 January 2015.

Knight said: "It is very easy to call for quick timetables. Should this be the requirement though, the ability of the industry to finance economic recovery would be dramatically impeded.

"It is essential that the transition period not only takes place over a timescale, but also in a sequenced manner that ensures that the economic recovery is not impeded."

She said banks still had work to do to restore their reputations. "Although it was only a few banks that got into difficulty, we are all captured by those failures, the hostility of our people and the changes that are being made," she said.