FSA Lowers Capital Requirements on U.K. Lending Scheme

The U.K. Financial Services Authority relaxed bank capital requirements for loans granted under the Bank of England's, Funding for Lending Scheme, which could lead to more bank lending, according a Standard & Poor's sector update published today.

The FSA said on Sept. 27, that  U.K. banks will not be required to hold any extra capital on  increased lending if the new loans qualified for the Funding for Lending scheme. The U.K. regulator said "the precise amount of this offset will be determined in the context of discussions with firms on their capital adequacy and forward looking capital plans."

According to a U.K. RMBS sector update published today by Standard & Poor's, qualifying U.K.  banks will no longer be required to maintain  the previous 10% target for end-2013 core equity ratios . The FSA has replaced it with lower bank-specific targets, that can fall below 10%.

The Bank of England (BofE) launched  its Funding for Lending Scheme (FLS) in July. The scheme  allows U.K. banks and building societies to borrow up to 5% of their stock of existing lending to the real economy, which is equal to roughly £80 billion ($125 billion) across all potentially eligible banks and building societies.  The plan, designed to boost new lending growth in the U.K. real economy.  

From August 2012 to February 2014, banks and U.K. building societies will be able to borrow U.K. Treasury Bills from the BofE for up to four years against collateral, securitizations.