Bank capital requirements will play an important part in the global economic recovery since banks do not have sufficient liquidity to lend to the private sector that is hampering the economic growth. The total credit to GDP ratio is an important indicator over or under supply of the lending in the economy. This ratio has decreased markedly after 2007.
The figure shows that credit to GDP ratio as per Bank of England calculation has decreased in 2010. The credit growth in the economy has been low in 2010 particularly to small and medium business that do not have access to capital markets unlike their large counterparts.
The capital requirements of banks might hamper the economic growth more as the current international and domestic conditions suggest that contraction in the lending will continue in near future. Considering the current economic conditions, should the regulators relax the capital requirements in the short term enabling the economic to recover?