New banking rules to put an end to the era of 'cheap money'

Central bank heads and regulators meeting in Basel yesterday agreed rules which will force banks to more than double the spare cash they hold under new global regulations designed to prevent a repeat of the financial crisis.

Angela Knight, chief executive of the British Bankers' Association and a former Sheffield city councillor, said the agreement was likely to see banks hike the cost of credit for borrowers, already hit with a lending clampdown since the credit crunch.

The new requirements will up the amount banks hold in common equity – the core Tier 1 ratio – from 2 per cent to 4.5 per cent, with a further "buffer" of 2.5 per cent, bringing the total liquidity cushion to 7 per cent of assets and liabilities.

However, the Financial Services Authority has already introduced strict new rules on bank reserves since the 2008 meltdown and most UK banks now have core Tier 1 ratios of 9 per cent or more.

Ms Knight said the new rules would end the "cheap money era" as it becomes more expensive to run a bank, which will in turn be passed on to consumers.