According to the Treasury Committee, business loans are harder to come by because business bank account providers are subject to new regulations.
Andrew Tyrie, committee chairman, has written to both the Financial Services Authority and the Bank of England, requesting them to take careful stock of how these new regulations will impact the business lending industry. Mr Tyrie warned that such regulations may end up damaging the economy due to an affect on lending, especially in light of how hard it is to secure working capital with the eurozone crisis.
Mr Tyrie’s missive to Bank of England governor Sir Mervyn King and the FSA chief executive Hector Sants claimed that financial services institutions are already experiencing pressure to adopt new regulations requiring them to hold additional levels of capital now, even though the new rules will not be officially enforced for another three years. Banks are also facing the withdrawal of emergency funds that were previously provided during the credit crunch.
Both My Tyrie and Mr Sants were embroiled in a disagreement this past summer, with the Committee chairman saying it was ‘unacceptable’ that the FSA chief executive refused to delay additional new proposal introductions. Too much is taking place too quickly, said Mr Tyrie, stating that the sovereign debt crisis in the eurozone only made the new regulations that much more unpalatable.
Mr Tyrie warned that the economic recovery could be set back even further because of continued credit contraction due to limitations on bank liquidity. BoE figures support the possibility, as the Bank reported recently that bank credit dropped 7 per cent in the past 12 months from August 2011.