Bank of England under fire for insisting on £25bn injection
The Bank of England has come under fire for hindering the UK's recovery as it declared banks will have to raise an extra £25bn by the end of this year.
The Financial Policy Committee said the extra funds were needed to weather the impact of exposures to the struggling property sector, the Eurozone crisis and scandals such as Libor-fixing and the mis-selling of payment protection insurance while maintaining lending in the real economy.
But the CBI warned the extra pressure on banks to raise funds would hinder efforts to kick-start credit flows to the economy.
Competitive markets director Matthew Fell said: "While the FPC wants banks to meet additional capital levels in a way that will not restrict lending, it is difficult to see how this can be achieved."
James Barty of the Policy Exchange think-tank added: "Bank lending to private companies in the UK has fallen by £10bn in every single year since the financial crisis. Increasing capital ratios even further, as the FPC is proposing, would lead to a further lack of credit to small businesses."
Andrew Bailey, new head of the Prudential Regulation Authority bank regulator which answers to the FPC and comes into being next week, has previously expressed concern about inadequate provisions for losses on loans.
The FPC says banks should achieve a tier one capital ratio – a measure of balance sheet strength – of 7% by the end of this year, although it declined to name institutions which need to raise funds.
In the years ahead banks are likely to need tens of billions extra as institutions are forced to raise capital ratios to 9.5% to meet increases in capital requirements under the Basel III regime.