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Categorized | Banks

Barclays’ threat on lending under fire


Posted on June 30, 2013

Antony Jenkins, Barclays chief executive, has come under fire for threatening to curb lending to businesses to meet more stringent capital requirements imposed by UK regulators.

Robert Jenkins – a former member of the Financial Policy Committee, the UK’s new stability regulator – criticised the warning as either “hubris, reflex or plain stupidity” in a letter published by the Financial Times.

    An outspoken advocate of tough bank regulation who has worked in banking and asset management, Robert Jenkins left the committee earlier this year after not being reappointed by George Osborne, chancellor.

    He said there were a number of measures Barclays could take to meet its capital commitments, such as retaining earnings, raising equity, cutting costs or reducing bonuses.

    “Or it could cut back on lending to the real economy to bring down its assets without bringing up its equity,” he said. “Of all the options the last in this list was the one its CEO chose to mention. Was this meant as a threat? Was it hubris, reflex or just plain stupidity? Is this the new Barclays?”

    Antony Jenkins on Friday said Barclays would be able to strengthen its leverage ratio – a measure of its dependence on borrowings – under pressure from the Prudential Regulation Authority after the regulator identified capital shortcomings at UK banks in June.

    But in his comments to investors he also warned: “An aggressive acceleration requirement from the PRA would require additional actions.” These included potentially restricting “lending to the UK and other economies, which is something we want to avoid”, he said.

    The PRA irked banks when it included a 3 per cent leverage ratio target in its assessment of UK lenders’ capital health. It identified shortfalls at Barclays and Nationwide, the UK’s largest building society, which have projected leverage ratios of 2.5 per cent and 2 per cent respectively under PRA tests.

    Both need to outline to the PRA by the end of this week how they plan to reach the target. The Bank of England said curbing lending would not be accepted.

    Regulatory pressure is being felt across Europe and banks have been cutting assets partly by reducing lending to the riskiest of their clients. The region’s lenders are expected to shrink their balance sheets by another €1.5tn, as lending to businesses reaches a six-year low, according to research by Ernst & Young.

    Marie Diron, a senior Ernst & Young economic adviser, said: “We had hoped that the most destructive phase of deleveraging in the eurozone had passed but it is continuing at pace this year.”

    She added: “Total assets will have fallen to 2008 levels by the end of the year and total assets could fall further to 2007 levels by the end of 2014.”

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    Letter in response to this report:

    Is Barclays’ threat to cut lending a case of hubris, reflex or just stupidity? / From Mr Robert Jenkins