The Co-operative Bank is to stop lending to new corporate customers as it seeks to repair a major hole in its finances - dealing a blow to efforts to ease the borrowing squeeze on small businesses.
The move comes after credit ratings agency Moody's downgraded the Co-op to junk status, forcing it to issue a statement that it did not need to be rescued by the taxpayer.
It is seeking to rebuild its capital strength amid reports that it is facing a £1 billion shortfall, with regulators forcing banks to hold more cash as a buffer against future crises.
The bank has begun trying to shore up its finances by disposing of assets such as its life and general insurance businesses. It also pulled out of a deal to buy more than 600 Lloyds banking branches.
Today it emerged that it had gone a step further by stopping its lending to new corporate customers for the rest of 2013. Loans for existing business clients would be considered on a "case-by-case basis" but the move does not affect retail customers.
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