Business groups respond to Treasury Committee on Basel 3.1 reforms to SME lending

The Prudential Regulation Authority (PRA) is proposing introducing the ‘Basel 3.1 standards’, which would reform the amount of capital a bank must hold in relation to the risk profile of its lending. In short, the changes would mean that the riskier a bank’s lending is, the more capital it would need to keep on hand.

Among other measures, the preferential (lower) level of capital required of banks when lending to SMEs will be removed, increasing the cost of lending and potentially leading to higher borrowing costs for small businesses.

At the end of January, the Treasury Committee’s Financial Services Regulations Sub-Committee wrote to business groups to gather their views on the proposals.

The British Chambers of Commerce (BCC), Confederation of British Industry (CBI) and Federation of Small Businesses (FSB) were asked what effects the proposals could have on small business lending.

In response, the BCC highlights a “risk that economic growth will be hampered in pursuit of regulatory ‘perfection.’”

The FSB states that the economic conditions for small businesses are “arguably worse” today than they were in 2008-09, while the CBI warns the reforms will make “credit more expensive” for businesses.

Chair's comments

Commenting on the correspondence, Harriett Baldwin MP, Chair of the Treasury Committee, said:

“Introducing reforms to business lending are a difficult balancing act for the Prudential Regulation Authority, which needs to ensure small businesses can access funds to grow while protecting the stability of the financial system. We will continue to focus on this important area.”

Further information

• Treasury Committee
• About Parliament: Select committees
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