H capital requirements are the main cause of falling bank lending across Europe, according to a major new study out yesterday.
Deloitte’s study of 19 institutions found 71 per cent cutting lending to raise capital in order to hit regulatory targets.
Deleveraging is particularly marked because banks are struggling to sell off non-core assets as the weak economic environment has hit valuations.
Liquidity rules are also an important factor according to 53 per cent of banks, particularly among those in the Eurozone.
But UK regulator Andrew Bailey insisted on Wednesday that targeting capital levels rather than ratios means banks should be able to increase lending and capital.
Fifty-three per cent of banks expect to improve capital ratios by up to 100 basis points (bps) through deleveraging, while 12 per cent forecast a rise of 150bps or more.
“European Union state aid rules and sovereign bail-out programmes and changes in business strategy induced by the plethora of reforms faced by the banking sector are also important drivers,” said Deloitte’s Vivian Pereira.
“Banks in countries under the IMF/EU/ECB programmes also have additional pressures to deleverage.”