Vince Cable accuses Bank of England officials of 'acting like the Taliban'

Business Secretary argued Bank demands are deterring small business lending and preventing recovery

Vince Cable, the Business Secretary (Rex Features)

Vince Cable has stirred tensions within the Bank of England by apparently comparing policymakers to the Taliban over restrictions imposed upon banks.

He accused the BoE of slowing recovery by imposing heavy financial burdens on banks.

The Business Secretary argued its demands that banks must boost the levels of capital they hold to protect against future financial shocks is deterring small business lending and holding back financial recovery.

In an interview with the Financial Times, Mr Cable said: "One of the anxieties in the business community is that the so-called 'capital Taliban' in the BoE are imposing restrictions which at this delicate stage of recovery actually make it more difficult for companies to operate and expand."

Mr Cable has hinted at tensions between the BoE and the Government before, but the strong language of his latest intervention comes less than a month into the tenure of new Bank governor Mark Carney.

It remains to be seen whether his remarks will persuade policymakers to soften their stance or simply harden their resolve.

Chancellor George Osborne reportedly shared Mr Cable's views. One Treasury official told the FT that it was hoped that Mr Carney would rein in the "jihadist" tendency in Threadneedle Street against the banks.

The Bank's new Prudential Regulation Authority (PRA) has ordered Britain's five biggest lenders to raise £13.4 billion to plug a £27.1 billion gap in their finances.

Nationwide, Britain's biggest building society, was reportedly left with a £1 billion hole.

It announced two weeks ago that it had been able to meet the PRA's demand for it to strengthen its leverage ratio - a key measure of financial strength - to 3 per cent from 2 per cent, without raising extra funds from investors.

The regulator's critics say that by trying to meet the new targets, banks and building societies will have to slow new lending to households and small businesses that is desperately needed to boost the UK's ailing economy.

While official figures tomorrow are expected to show that growth improved to around 0.6 per cent for the second quarter, many economists believe the recovery remains fragile, and gross domestic product is well below its pre-recession peak.

Anthony Browne, Chief Executive of the British Bankers' Association told BBC Radio 4's Today programme that he thought Mr Cable was quoting others, rather than using the word himself.

”But there clearly is concern in various parts of the industry about the pace at which they're required to raise their capital ratios.

“The Bank of England financial policy committee has these counter-cyclical policy requirements, where the amount of capital they require banks to have they know is counter-cyclical economically. You push capital requirements up in a boom, you push them down when there's a recession.

”The trouble at the moment - and indeed for the last five years - is that we've had this massive increase in capital amongst banks of £165 billion during a time of low economic growth. Across the banking sector as a whole, there clearly is a correlation in the short term between requiring banks to massively upgrade the amount of capital they have and the amount of lending and the amount of economic growth.“

Additional reporting by PA