Britain’s banks are hoarding large amounts of cash and capital because of market pressures rather
than regulatory requirements, a top regulator said.
Hector Sants, who stands down this month as chief executive of the Financial Services Authority (FSA), said lenders are
worried that markets would perceive them as not being safe if they did not hold so much cash.
What is determining the amount of cash banks hold is the market climate and not the regulator,’ Sants told the BBC on
Wednesday.
Banks have complained that they cannot lend to businesses to the extent that the government would like while simultaneously
building up capital and liquidity buffers.
Britain was the first in the world to force local banks to build up liquidity cushions ahead of globally agreed rules.
Paul Tucker, Deputy Governor of the Bank of England, said on Tuesday that requirements for banks to hold cash cushions could
be crimping the impact of the central bank’s quantitative easing asset purchases.
The FSA will be scrapped by early 2013 and replaced with two new regulatory bodies, one housed at the Bank of England, making
it one of the world’s most powerful central banks.
UK lawmakers say the reform, now in the final stages of approval in parliament, won’t make the Bank of England
sufficiently accountable, but Sants said the issue was not one of too much power.
We could be concerned that the operational task given to the governor as an individual … is just too great. The risk is
operationally this is going to be too difficult for one person to manage,’ he said.
Sants also raised concerns about Britain being sidelined by a euro zone banking union making its own rules.
That would become an unworkable model,’ he said, adding that Britain would be at the mercy of ‘a rule book which, effectively,
we would have lost all control over’.He also said that the first run on a British bank in a century could have been avoided if the Bank of England had heeded his advice to pump liquidity into Northern Rock during the 2007/09 financial crisis.
