Bank of England warns banks are lending too much again as new capital requirements are imposed

The Bank’s Financial Policy Committee said lenders are relying too heavily on borrowers keeping up payments and may have left themselves overexposed to the effects of a shock in the financial system.

The committee noted that banks and other lenders have recently started lending to people with weaker credit records.

Banks will now have to set aside £5.7bn in the next six months in case future economic shocks mean some borrowers cannot keep up their repayments.

A further £5.7 billion will have to be found by the end of next year.

The FPC suggested lenders had become complacent about their lending.

It noted rapidly growing consumer borrowing via credit cards, personal loans and, notably, car finance.

Collectively known as consumer credit, these forms of borrowing have grown by more than 10% in the past year, far outstripping the growth of incomes.

“Lenders may be placing undue weight on the recent performance of loans in benign conditions,” the FPC said.

The committee has also taken action to stop banks getting around key tests which are designed to stop them lending too much to consumers.

Bank Governor Mark Carney said: “We are reinforcing some of the protection ,” he explained, by telling banks to add to their financial cushions.

H added: “Borrowers should consider adverse scenarios as well as positive scenarios.”