Bank of England targets small lenders after market turmoil

The recent banking turmoil has forced Nikhil Rathy, chief executive of the FCA, to reconsider UK readiness. Photo: Holly Adams/Bloomberg

To ensure that funds are paid out quickly, regulators want banks to have easy access to large amounts of money that would otherwise be lent to homebuyers and other borrowers, generating income for savers.

Setting aside this money will reduce the number of banks' profits and may mean they have to cut back on lending or reduce the interest rates they pay to depositors.

Bigger banks will be exempt from holding any additional funds due to strict requirements for lenders with assets over £15bn, which means they have over £500bn of additional resources.

These rules apply to the largest major banks as well as large building societies such as Nationwide, Skipton and Yorkshire.

Instead, the burden will fall on bidding banks and small building societies, which have branded the proposals as a «surcharge.»

An industry source said: “The argument is that the larger lenders are under much more scrutiny; they have to collect [funds for a rainy day], while the smaller ones do not.

&#34. Therefore, to offer this protection, they will have to pay for it.

"But I think the result of this could be a problem for the viability of small banks."

It is understood that the Bank will put pressure ahead with separate changes announced in February that are intended to remove various red tape for small lenders who rely on deposits from savers to get the bulk of their funding.

Threadneedle Street is also considering opportunity to act as a "bridge bank" for the clients of the bankrupt lender so they can continue to access their money. However, this option is seen as risky as taxpayers could end up on the hook for losses.

A source said: “The Bank of England considers an intermediate bank too lucrative for a bailout. moment."

The Bank of England, the FCA and the Treasury declined to comment