King defends plans to make banks raise capital

Bank of England governor Sir Mervyn King defended plans to makes banks find an additional £25bn of lending by the end of the year. The plans have been opposed by Vince Cable, Policy Exchange and a number of bank lobby groups.

Vince Cable warned in an interview with Sky News that requiring banks to raise capital would damage lending. There are fears that forcing banks to recapitalise will result in a drying up of funds for small businesses.

Sir Mervyn said that "far from reducing lending, today’s recommendations will support lending & promote growth."

Today the Institute of Economic Affairs released a new paper which argues that forcing banks to accumulate capital can be counter-productive and that history demonstrates that capital regulation is not necessary if banks are not 
underwritten by the state.