September 13, 2012 / 10:58 AM / 6 years ago

BoE's Kohn urges UK banks to lend at home, not abroad

LONDON (Reuters) - British banks should cut exposure to the euro zone and lend at home instead, Bank of England policymaker and former Federal Reserve vice-chairman Don Kohn said in a newspaper interview published on Thursday.

Kohn - an external member of the BoE’s Financial Policy Committee, which sets broad guidelines for the finance industry - said British banks had a responsibility to support domestic businesses.

“It’s really important that they be active lenders and support the UK economy. That’s their home base,” Kohn was quoted as saying by the Financial Times. “It makes good business sense.”

The BoE and many politicians have blamed Britain’s very slow recovery from the 2008 financial crisis in part on banks’ reluctance to expand business lending.

Last month the central bank and the finance ministry launched a scheme that offers banks cheap funding if they increase net lending. On Wednesday BoE ratesetter Ben Broadbent said this, rather than more government bond purchases, was probably the best way to support the economy.

But the BoE has also urged banks to raise capital levels, something they say is holding back lending, along with weak demand at a time of global economic uncertainty.

The FT reported Kohn as saying that this circle could be squared by banks reducing their overseas exposure.

“(But) I hope that as the crisis is resolved that cross-border banking will pick up again. I don’t think it is good for efficiency to have compartmentalised financial markets,” he added.

Reporting by David Milliken; Editing by John Stonestreet

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