Under normal capital adequacy rules banks have to hold 10% of their assets but the relaxed rules will not force them to increase that capital buffer value if they lend more through the FLS scheme.
Andrew Bailey, head of the FSA’s prudential unit, also said banks will be set individual capital ratios to stop rapid deleveraging of balance sheets to hit the industry wide targets.
These new individual targets will be implemented by the end of 2013 and will replace the risk-adjusted core ratio of 10% of assets.
Bailey told the Financial Times: “The goal is to avoid rapid deleveraging that would harm activity in the economy.”
Banks have also been told that they can hold a broader variety of assets in their capital buffers.
