International regulators are worried that business secretary Vince Cable’s plan to boost small business lending will undermine their careful plans to reduce risk in banking, City A.M. understands.
Watchdogs worldwide have spent years since the crisis pushing banks to hold more capital against risky loans, but Cable believes this has cut lending to firms.
As a result, he will use the British Business Bank to guarantee a portion of small business loans, getting around the capital rules and encouraging banks to lend more.
A regulator yesterday maintained the buffers must be respected because “this recent crisis has once again demonstrated that banking crises are extremely costly: not only to taxpayers, when public funds are used to bail out banks, but in lost national wealth.”
A spokesman for Cable said banks would retain some of the risk.