A leading business group today warned that new rules forcing banks to hold more cash in reserve could risk stifling the UK's economic recovery unless they are phased in gradually.
The Bank of England's Financial Policy Committee (FPC) recently said lenders must plug a £25 billion capital shortfall as they face a potential £50 billion hit over the next three years from eurozone shocks, bad debts and mis-selling scandals.
But business lobby group the CBI said capital buffer increases must be carefully timed so vital cash is not sucked from the economy just as growth looks to be picking up.
CBI director general John Cridland made the comments as the group confirmed forecasts for the UK economy to grow by 1% this year, before accelerating to 2% next year.
Growth in business investment is expected to be just 3.3% this year, reflecting caution among companies while the global recovery remains precarious.
Mr Cridland said forcing lenders to build capital buffers too fast means they are "less able in the round to support business users of finance".
He added: "I would not front-load the capital requirements. The banks are saying there's a tendency to push too quickly on capital buffers and that's holding back money that could be spent on new products.
"The timing of capital requirements is a very material part of the contribution they can make to the economic growth."
Lenders have been told to bolster capital reserves since the financial crisis froze money markets and forced bank bailouts. Regulators are expected to order banks to fill the £25 billion capital hole by the end of the year.
But Mr Cridland called for UK regulators to apply consistent rules on bank capital, in line with other global regulators.
He said: "There's been a tendency since 2007 for policymakers to do more than has been required under Basel rules."
Capital levels at customer-owned lender the Co-operative Bank have come under scrutiny in recent days after ratings agency Moody's slashed its debt rating and warned it could need a Government bailout.
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It said the bank's capacity to absorb future losses was too low to support an investment-grade rating following hefty losses stemming from its takeover of Britannia Building Society in 2009.
Moody's said it might need "external" support and said there was "moderate potential for systemic support likely to be forthcoming from the UK authorities".
The Co-op's struggles to plug a reported £1 billion capital gap were said to be behind its withdrawal from a deal to buy more than 600 branches from Lloyds.
However, the Co-op insisted "we haven't sought nor do we need Government support" and said it was taking action to strengthen its bank's balance sheet.
Mr Cridland declined to comment on the Co-operative's downgrade.
