Chris Cummings, Chief Executive of TheCityUK, comments on the announcement by the Financial Policy Committee that UK banks need to raise an extra Â£25bn in capital reserves by the end of 2013.
Chris Cummings said:
"It is important that the UK has a stable and sustainable financial system, and the FPC's new measures will go some way towards achieving this. We must ensure that banks hold enough capital to retain liquidity in the event of future shocks. However, it is also important that policymakers are mindful of the impact on economic growth when designing and implementing regulations.
"Asking the banks to hold more capital risks reducing the funds they have available for lending, especially given the FPC's decision to give banks until the end of the year to raise the funds. In practical terms these measures mean small businesses, on whom the UK's economic recovery depends, will be constrained in their ability to access finance.
"These latest capital requirements may further reduce the attractiveness of banks for investors. Investors need a clear earnings profile from banks to appropriately value banking shares."
Image by Sarah Wetherell [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons