UK banks allowed to cut their cash holdings

LONDON (Reuters) - Britain's eight top lenders can cut their cash buffers by a collective 90 billion pounds ($140 billion) to help economic growth, the Bank of England's new governor Mark Carney said on Wednesday.

Britain's lenders have been forced in the past to build up liquidity buffers of cash and government bonds far earlier than required under a globally-agreed timetable.

The buffers will cushion banks from short-term market shocks so they can keep operating for a month even if markets freeze as they did during the 2007-09 financial crisis.

Carney, in his maiden speech as governor of the Bank of England, said it "will help to underpin the supply of credit, since every pound currently held in liquid assets is a pound that could be lent to the real economy".

In a separate statement, the central bank's Prudential Regulation Authority, which supervises UK lenders, said banks can scale back their liquidity buffers on condition they have a minimum core capital ratio of 7 percent, a new rider.

The watchdog has said it expects the lenders to meet this capital ratio by the end of the year.

The PRA is implementing a policy the BoE's Financial Policy Committee decided on in June to allow the four biggest banks to scale back their liquidity buffers to 80 percent of where they should be if in full compliance with the global Basel III accord.

This would release 70 billion pounds but by extending the change to the eight main lenders, a further 20 billion pounds can potentially be released.

In his speech, Carney struck a more neutral tone towards banks, avoiding some of the harsh rhetoric of his predecessor Mervyn King.

But like King, he insisted that well-capitalized banks are in a better position to lend, saying U.S. banks have rebuilt their capital base and now lend far more than their British peers.

Britain's banks will face further capital requirements because of their size or dominance on the high street but Carney said his task will be to manage this transition "in a gradual way that supports continued confidence in growth".

($1 = 0.6435 British pounds)

(Reporting by Huw Jones, editing by Matt Scuffham and David Evans)