Britain's top banking regulator defended his tough rules, saying strong capital buffers were a pre-condition for keeping the economy supplied with credit.
Andrew Bailey was speaking after the UK government urged the Bank of England's risk watchdog, on which Bailey sits, to ensure regulation does not impede recovery.
Banks complain it is difficult for them to keep lending to businesses and households when the BoE's Prudential Regulation Authority, headed by Bailey, is asking them to plug a £25 billion capital hole by year-end. "At present the Bank of England is pursuing two important objectives: seeking to increase the resilience of the UK banking system and supporting the creation of credit in the UK economy".
Last week the central bank retooled its Funding for Lending Scheme designed to improve the supply of credit to the economy. "We cannot say that this will conclusively deal with the question of whether the problem is a lack of loan supply or demand, but we can say that we have used our toolkit to create a big incentive for banks to lend to small firms", Bailey said.
It will also require a "very strong culture" for regulators to rein in banks to keep the financial system stable when the good times return.
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