For the court of directors at the Bank of England to be called Taliban by a Business Secretary must be a first. But this is what Vince Cable did–probably the best known old hand of the Liberal Democrats because of his rich oratory in and outside the House of Commons. Yet, most financial analysts in the Continent today supported in their investor notes the opposite argument
As reported this morning by the Financial Times and echoed by The Daily Telegraph and other national newspapers, Cable said: “One of the anxieties in the business community is that the so called ‘capital Taliban’ in the Bank of England are imposing restrictions which at this delicate stage of recovery actually make it more difficult for companies to operate and expand.”
The Business Secretary was sending a truculent warning about the new ‘leverage ratio’ target, which requires lenders to hold Tier 1 capital equal to 3% of their total loan book. The question that this measure sparks, not only for the Coalition that governs the UK but for the private sector as well, is how can lenders offer credit amid ever harsher demands of further capital reserves.
The question isn’t so for market experts and fund managers, nevertheless. In the sector regulators’ agenda, European banks will indeed need more capital to protect the public purse from the fallouts of the risks that entities take on.
According to analysts in Madrid, the European Central Bank is about to check asset value ahead next year’s stress tests, and German and French banks appear to be on the front line in the receiving end, not peripheral banks. The names would be Deutsche Bank–which already plans to cut assets by €1 billion during the next two years and a half–and the French Societe Generale. Barclays would the British entity most undercapitalised in the list, too.
Cable, probably as the entire cabinet in Whitehall, isn’t alone in denouncing that the timing of this regulatory frenzy could be better. Particularly small and medium size companies still suffer the consequences of the credit crunch, and they are the ones pivotal to job generation. And yet, bank balance sheets have to undergo an unavoidable cleansing process.
The fact is that, once their continental counterparts start to show brightened numbers and healthier opportunities of investment, British banks will regret it if the Business Secretary succeeds in taming the intentions of the Bank of England.