WSJ
"Indeed, the start of the U.K downturn can be dated almost precisely to Mr. King's public demand in the middle of August 2010 that banks start repaying the BOE and treasury's emergency funding facilities early. That forced banks to raise expensive debt, slashing margins, while restricting the availability and raise the price of new lending. The U.K. banking sector was dealt a further blow in April when the Independent Banking Commission, set up partly in response to Mr. King's apparent support for breaking up banks, recommended domestic retail banking businesses be ring-fenced—a decision that has left U.K. banks among the worst performers and lowest valued in Europe. Even though the ICB watered down its final recommendations, few would now dispute the ring-fence proposal is at best a costly irrelevance, at worst a grotesque act of self-harm.
U.K. policy makers miscalculated. Academic theory convinced them that if they told banks to raise capital and liquidity ratios, banks would go out and issue new shares and bonds; and they believed investors would be happy to provide the capital even if the bank earned a lower return on equity since the bank would be safer. In the event, investors saw things differently: They didn't see why highly leveraged banks should earn a lower rate of return than the wider market. And they pressured banks to shrink their balance sheets to meet both new regulatory-capital and liquidity targets and the market's return-on-equity targets and they pressured them to do it immediately, ignoring the lengthy Basel timetable. This dynamic that has led to a mortgage famine and a credit crunch for small and medium-sized enterprises; credit supply is shrinking and money supply growth has been virtually stagnant."
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