BANKS have hit out at the City watchdog for introducing new rules that are crippling the flow of credit to small firms, according to a secret document seen by City A.M.
In a sign of frustration at the FSA’s hyper-strict regime, banks have called on a special government taskforce to intervene and curb what they see as an over-zealous approach.
The banks blame the FSA for making it harder to sell on bundles of small business debt to investors, cutting off a major source of credit.
The Cabinet Office has summoned senior bankers to a pre-Budget meeting on how regulation is affecting lending, suggesting that banks’ arguments could gain traction as the coalition becomes desperate for growth.
The document, sent to the Breedon Taskforce in the department for business late last month, points the finger at the FSA for destroying large parts of the small business (SME) credit market. “In failing to create a clear and transparent framework for unrated issuance [of bundled SME debt], regulators are effectively constraining bank lending capacity to those borrowers who need it most,” the paper says. “In recent instances, investors have walked away from transactions due to regulatory uncertainty.”
It claims that resolving the uncertainty would have a “substantial impact” on credit supply and cost.
The paper also criticises the FSA for being inflexible on how banks assess the riskiness of SME loans. The FSA declined to comment.