Bank unveils new economic stimulus Andy Haldane, executive director for financial stability, said: "The stockpile of liquid assets is very substantial. Both of those are chunky numbers and suggest that, were an element of that to be released, it would make a big impact on real economy lending in the UK. If liquidity ratios were allowed to fall back to levels seen before the crisis, as much as £300bn could be released for new lending, the Bank's Financial Stability Report (FSR) showed, around twice the total stock of loans to small and medium sized businesses in the UK. The Financial Services Authority will now assess on a company-by-company basis how much of their "regulatory liquid asset buffers" banks will be allowed to run down, taking into consideration their ability to access emergency liquidity through the ECTR. Easing the liquidity requirements is the latest in a line of recent central bank interventions designed to ensure the economy is not starved of credit or forced to pay punishingly high borrowing rates. Earlier this month, it unveiled the ECTR and a "funding for lending" scheme to help boost the supply of credit by as much as £140bn. The Bank said it was concerned that just a small increase in households real borrowing costs or a squeeze in credit could damage the economy. Mortgage rates have risen by almost three quarters of a percent in the past seven months and households are struggling to keep up with payments, the report said. Even a small increase in write-off rates would damage banks" profits, as they have £1.1 trillion lent to households, which could trigger a devastating "adverse feedback loop" of even more restrained credit and higher mortgage rates. "One plausible trigger could be a tightening in credit supply, leading to an increase in arrears and downward pressure on house prices," the FSR said. Despite the regulator's decision to relax liquidity rules, it urged banks to continue building up capital by restraining bonuses and dividends, and to even consider debt for equity swaps that could raise at least £8bn. The extra capital, the Bank said, would be used to "absorb losses ... if current risks materialise." If the risks recede, "capital ratios could then fall back to the official transition path" to the incoming regulatory rules. The Governor expressed disappointment that banks have not increased their capital much this year, despite regulatory pressure. However, Andrew Bailey chief executive-elect of the Prudential Regulatory Authority, pointed out that compensation for mis-selling scandals has sapped banks' ability to build up capital through retained profits.