UK chancellor George Osborne has warned the Bank of England the fragile economy will be at risk should it put the City under too much pressure.
Mr Osborne told the governor of the Bank of England Sir Mervyn King on Tuesday (30 April) that new watchdog powers - known as the new financial policy committee - should take the impact of its actions on "near-term economic recovery" into account when deciding on the future regime which banks will operate under.
In a letter to Mr King, Mr Osborne said there may be "short-term trade-offs between the committee's secondary objective of contributing towards economic growth and its primary objective of addressing sources of systemic risk, which may vary at different points in the economic and credit cycle".
The Treasury is concerned the central bank may set such tough capital and liquidity requirements for banks and other financial institutions that means business and households will find it harder to acquire credit.
By Asim Shah