Business lending could suffer from new regulations

New banking regulations are making it harder for banks to lend, says the UK's Treasury Committee.

Chairman Andrew Tyrie has written to both the Bank of England and the Financial Services Authority asking them to "carefully examine" the impact of the new regulations. With the eurozone crisis already making funding harder to obtain, such regulations may affect lending and damage the recovery, he warned.

Tyrie's letter, sent to Sir Mervyn King, governor of the Bank of England, and the chief executive of the Financial Services Authority, Hector Sants, said that banks were already coming under pressure to implement new rules forcing them to hold more capital (the Basle 3 agreement) well before the regulations come into force in 2015. Emergency funding provided during the financial crisis was also being withdrawn.

Tyrie was involved in a disagreement with Sants in the summer, calling his refusal to delay the introduction of additional new proposals, the Retail Distribution Review, as "unacceptable". Again, for Tyrie, too much is taking place too soon. The new regulations were exacerbated by the eurozone sovereign debt crisis.

"The squeeze on bank liquidity is running the risk of continued credit contraction setting back the prospects of economic recovery", he warned. According to the Bank of England, there has been a 7% drop in bank credit in the year dating to August.

In September, the Bank of England's recently formed Financial Policy Committee, which includes high-ranking figures in the Financial Services Authority, asked banks to cut dividends and bonuses to support borrowing levels. Tyrie called for regulators to ensure there was not a gap in supervision and that these proposals were not circumvented.

Are you set to be affected by these contractions? Are banks continuing to lend? Drop us a comment and let us know. Meanwhile, check out our range of business savings accounts.