Documents reveal UK bank rules talks

A new financial watchdog in the UK considered making life easier for banks by relaxing tough balance sheet rules in a bid to encourage lending, documents revealed today.

The Financial Policy Committee (FPC) discussed whether banks could loosen their capital or liquidity ratios – cushions that protect banks when they hit choppy water.

But ultimately the FPC, set up to oversee the country’s financial stability after the credit crunch, judged it would be “inappropriate” to relax the rules as such a move could be perceived as weakening the banks’ funding positions, which in turn could lead to lower lending.

Banks should instead “take any opportunity” to bolster balance sheets, including cutting dividends and bonuses, the FPC concluded.

The FPC, an official committee of the Bank of England, chaired by the Bank’s governor Sir Mervyn King, currently meets on an interim basis before it is given full legislative powers next year.