Banks should be forced to raise more equity now rather than be given long grace periods for heavier capital requirements to take effect, which would not help a recovery in lending, according to leading UK economist Andrew Smithers.

Smithers, founder of eponymous consultancy Smithers and Co, warned last week in a research note that banks were contracting credit because they were being told they would have to raise equity ratios in a few years' time and were thus already girding their loins.