U.K. Banks May Cut Lending for BOE Capital Call

U.K. banks, under pressure from the Bank of England to increase capital, may do exactly what the central bank doesn’t want them to do: Cut lending.

While trimming or delaying dividends, selling assets, reducing pay or raising equity would also bolster capital, banks such as government-owned Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc may be tempted to shrink lending, said Paul Mumford, who helps manage about 350 million pounds ($569 million) including Barclays Plc, RBS and Lloyds shares at Cavendish Asset Management Ltd. in London.

“I’m not sure how they will get the capital, but one of the ways is lending less money,” Mumford said. “You can’t encourage banks to lend more and tighten up on the other end of the scale.”

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