Relax liquidity rules to boost lending – CBI

Julian Harris
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RULES forcing banks to build up their liquidity buffers should be relaxed to allow lenders to boost lending, the Confederation of British Industry (CBI) said yesterday.

The business group called on the Financial Services Authority (FSA) to urgently loosen the regulations as part of a growth strategy to help the UK escape its economic slump.

“The Treasury and Bank of England have signalled a willingness to relax liquidity rules, but the FSA needs to drive forward with these changes immediately so that banks can release funding into the economy,” CBI director general John Cridland said.

“The government has this week announced good initiatives to boost exports, and the Funding for Lending scheme should help lower costs, but action on liquidity buffers would have most impact now,” Cridland added.

The CBI was responding to the Bank’s latest trends in lending report, which showed subdued levels of support for businesses. The group released its own report yesterday, calling for financial regulation that is “fit for recovery”.

As well of modifying the UK’s so-called super-equivalents on international liquidity requirements, the CBI more broadly called for “a specific growth objective for the new financial regulators in the UK”. The report also said that regulations must not block diverse sources of finance, for example “by allowing insurers to play their part as long-term investors through getting the Solvency II reforms right”.

The Bank should also consider buying private sector debt, the CBI suggested.