2012.06.21 21:12:19 *Euro Ministers Informally Agree to Use EFSF to Bail Out Spain Banks, Likely to Transfer to ESM Later -Reuters

By Ainsley Thomson

The Bank of England should pump more stimulus into the recession-hit
U.K. economy and regulators should relax strict rules governing banks'
liquidity requirements, the head of one of Britain's leading business
groups said Thursday, stressing that urgent action is needed to stop a
lack of finance choking off the economic recovery.

Confederation of British Industry Director General John Cridland said
the BOE should also seriously consider using its asset
purchase-program, called quantitative easing, to invest directly in
nongovernment assets, such as bank bonds and high-grade corporate
bonds.

The BOE has bought and sold small amounts of corporate bonds and other
assets in the past few years but only to ensure specific markets are
functioning smoothly. The vast bulk of its 325-billion-pound ($511
billion) stimulus program has been spent acquiring U.K. government
bonds, known as gilts.

The central bank appears poised to instigate a further round of
quantitative easing next month after minutes of the rate-setting
Monetary Policy Committee's June meeting, published Wednesday, showed
Governor Mervyn King was narrowly defeated in a vote on a fresh bout
of bond purchases. The minutes recorded that nearly all the nine
policy makers thought fresh action may soon be needed.

In a speech to business leaders in the South East of England, Mr.
Cridland Thursday said there is an acute shortage of credit following
through the economy and called for the government and BOE to take
immediate action to rectify the situation.

The drying up of the flow of credit is being blamed for being one of
the chief reasons for the U.K.'s poor economic performance, which saw
the country slip back into recession in the first quarter. The
government says the shortage of credit has been caused by the ongoing
strife in the euro zone, which it says has led to a tightening of
credit conditions and an increase of banking-funding costs in the U.K.

In an attempt to ease the situation, Chancellor of the Exchequer
George Osborne and Governor King last week announced banks would be
given unprecedented access to cheap central-bank funds provided they
use that cash to fund loans to U.K. households and nonfinancial firms.
The BOE has also activated an emergency liquidity facility that banks
can tap into if financial-market conditions deteriorate.

But Mr. Cridland's speech implied that more urgent action is needed
than the steps unveiled last week.

"We need an action-this-day approach, and the lesson so far is that we
must not allow good intentions to be lost to poor implementation," he
said.

Mr. Cridland said the strict rules governing banks' liquidity
requirements--the buffers of easy-to-trade assets like cash and
high-quality government securities that banks are required to
hold--were constraining banks' ability to lend and should be relaxed.

Mr. Cridland's statement echoes that of BOE Deputy Governor Paul
Tucker, who last week said regulators should permit banks to tap their
buffers of liquid assets to tide them over during the current period
of market turmoil.

Mr. Cridland also called for other measures to help restore the flow
of credit, such as making more nonbank finance available to midsize
businesses and using government-backed trade finance to boost exports.

--Jason Douglas in London contributed to this article.

Write to Ainsley Thomson at ainsley.thomson@dowjones.com


(END) Dow Jones Newswires

June 21, 2012 15:14 ET (19:14 GMT)