The British economy’s slower growth compared to the United States in the years following the 2008 financial crisis has been attributed to stricter banking regulations, according to Tyler Goodspeed, a former chair of the White House Council of Economic Advisers. Goodspeed, who served from 2020 to 2021 and currently serves as chief economist at Exxon Mobil, argued that increased capital requirements imposed on banks have hindered lending to businesses, restraining economic expansion.

In a paper released this week by the Institute of Economic Affairs, Goodspeed contended that the prolonged sluggish recovery in the UK was not an inevitable consequence of a severe recession. He noted that typically, deep recessions are followed by robust rebounds, but the UK deviated from this pattern due to regulatory decisions that made it more difficult for banks to extend credit to companies.

He highlighted that bank lending to UK businesses has lagged behind US levels since the financial crisis. While credit growth to smaller US companies returned to 2008 volumes by 2013, similar lending in the UK remains roughly 15 percent below pre-crisis levels. Goodspeed suggested this disparity results partly from UK lenders shifting toward lower-risk government lending, rather than financing the real economy.

Goodspeed emphasized that British firms tend to rely more heavily on bank loans than their American counterparts, who have access to more diverse sources of capital, including private credit, private equity, and venture capital. This difference disproportionately affects smaller and younger companies, which often lack tangible assets to pledge as collateral and therefore face challenges securing traditional bank financing. He pointed to technology companies as an example, whose primary assets—intellectual property and ideas—may not fit conventional lending criteria and therefore depend on alternative sources of funding.

Some post-2008 financial regulations have been eased since the UK’s departure from the European Union. The Bank of England has relaxed rules around banker bonuses and signaled intentions to ease certain capital requirements that compel banks to hold a buffer of liquid assets. The Labour Party, under Sir Keir Starmer, has also proposed loosening “ring-fencing” rules that separate retail banking from riskier investment activities. These changes have received support from parts of the banking industry.

Goodspeed described the decline in bank lending approvals for small and medium-sized enterprises as a “searing indictment of UK financial policy over the past 15 years.” He noted that prior to the crisis, approval rates for new loan applications in this sector were often between 80 and 90 percent but have since fallen to below 50 percent as of 2024.

The analysis underscores concerns that post-crisis regulatory frameworks, while intended to ensure financial stability, may have inadvertently constrained credit availability, limiting opportunities for UK businesses and contributing to the country’s slower economic growth relative to the United States.