FSA relaxes rules on bank capital to encourage lending The regulator has told banks that they will not be required to hold any extra capital against new loans that qualify for the £80bn Funding for Lending scheme launched by the Treasury and the Bank of England to kick-start lending. UK-domiciled banks, as well as UK subsidiaries such as Santander UK, have been told that they can treat this new lending as risk-free for regulatory purposes. Under the Funding for Lending initiative, British banks are being offered funding at low interest rates over a four-year period - but it will be directly linked to bank lending performance to encourage lenders to increase loan availability and reduce rates. The FSA has also tweaked rules that outline how much capital banks are required to hold. They have been given a absolute numerical target instead of a set core ratio of 10pc of their assets. The regulator believes this will mean lenders will not be able to meet regulatory targets by cutting their loan books and therefore starving consumers and businesses of capital. Instead, they will be allowed the flexibility to expand lending as and when demand grows. "The goal is to avoid rapid deleveraging that would harm activity in the economy," the regulator was quoted as saying. The relaxation of the rules represents a move into so-called "macroprudential" oversight by the regulator, whereby its role is not simply to judge whether institutions are safe, but also to take broader economic considerations into account.