Banking rules relaxed by FSA to boost loans

BANKING regulations have been eased by the Financial Services Authority (FSA) in a drive to encourage lending and stimulate growth, with Britain’s financial institutions now needing less capital in reserve when loaning money to businesses.

The FSA said yesterday it had been relaxing requirements over the last few months to “provide them with resources so that they can lend as well as staying resilient”. Sources last night suggested banks had welcomed the changes, which have seen regulations on capital requirements and liquidity loosened.

Banks will now have to hold in reserve a fixed amount of capital assigned by the FSA, rather than an amount equal to 10 per cent of lending, which saw banks cut back on loans in order to stay within lending limits. The banks have also been told that loans under the government’s Funding for Lending Scheme will be exempt from capital requirements.

The FSA called the changes a “rebalancing” of the rules and denied that they would lead to greater risk in the financial system.

The changes are understood to have come into effect in the last two to three months, and apply to all British banks.