Martin Taylor, an external member of the BoE's Financial Policy Committee, said the countercyclical capital buffer (CCyB) which British banks are required to hold is too low to be able to generate significant extra lending after a crisis.
The FPC is meant to raise the CCyB during credit booms to discourage reckless lending, then cut it during downturns. That would help banks to issue new loans at a time when lending typically dries up, aggravating economic downturns.
Taylor had low expectations of the CCyB if a crisis struck now. "I rather doubt that the release of a 1% buffer would make much difference to credit supply in a crisis," he said in a speech to financial regulators in Frankfurt.
The CCyB's current 1% level represents a neutral stance, in the FPC's view, and credit growth is slowing, limiting the case for any increase.
However, Taylor said the way the FPC implemented the CCyB meant it risked being slow to raise it in an upturn. Spotting a credit boom was not always easy, and the BoE typically gave banks 12 months to implement any increase, he said.
"The risk of policy inertia applies in spades," Taylor said. "This is our major crisis-fighting tool, and we take it very seriously, but no one should underestimate the practical problems of deploying it."
(Reporting by David Milliken; Editing by William Schomberg)
