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Cutting capital requirements would increase lending

The Banker just published some interesting research on how lower bank capital requirements could boost the economy. Their numbers suggest that cutting capital requirement by just 1% would dramatically increase lending power, enabling the UK to increase bank assets by an amount equal to about 37% of GDP — for Spain the figure was 33% and for Germany 20%. (Not as high was the US, where the increase in assets was estimated at just around 8% of GDP.)

That’s all very exciting as a prospect, but is it likely? With Eurozone fears still chilling the hearts of bankers and regulators, moves that would reverse the trend toward stricter capital requirements don’t seem to be on the cards, at least not now.

In lieu of the European Central Bank waving its magic wand, banks would be better served by looking at how well their current lending strategies protect their capital or increase it. That, at least, is under their control.

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