By Marcus Leach
UK Treasury Committee chairman Andrew Tyrie has written to the Bank of England warning that new rules on banks are making it more difficult for them to lend.
Mr Tyrie's letter to the Bank of England and Financial Services Authority (FSA) has asked them to investigate the impact of the new regulations.
It went on to warn that the job of lending and raising funding has already been made harder due to the ongoing eurozone crisis.
Any potential recovery of the economy, as well as future lending, could be damaged by the new regulations, according to Mr Tyrie.
The letter was sent to the governor of the Bank of England, Mervyn King and the chief executive of the Financial Services Authority, Hector Sants, on behalf of the Treasury Committee.
"The squeeze on bank liquidity is running the risk of continued credit contraction setting back the prospects of economic recovery," warned Mr Tyrie.
"Attempting to do it too quickly, in a hostile international economic environment, could risk setting economic recovery back for benefits that are unclear. If that were to happen a second crisis might come to be seen as having been aggravated rather than alleviated by the action of regulators.
"We readily accept that many of the actions you are taking may, for the moment, need to remain confidential. We will, however, wish to scrutinise those issues fully at an appropriate time."
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