Banks hindering recovery
01 May 2008
The Bank of England has warned that Banks need to be bolder in lending cash if Britain is going to pull out of an economic slowdown. The BoE’s deputy governor went further, accusing Lenders of 'hindering the recovery' of the financial system by being too cautious.
In the latest Financial Stability Report, banks are accused of being so fearful of further credit crunch losses that markets are being hit. The report predicts the gradual return of confidence over the coming months - but says the financial system remains vulnerable to risks.
Sir John Gieve, the Bank's deputy Governor in charge of financial stability, said: “Markets are facing a protracted and difficult adjustment following the end of the credit boom. The pricing of risk in credit markets seems to have swung from being unsustainably low last summer to being temporarily too high relative to fundamentals.'
“While some credit tightening is desirable, the conservatism over losses on mortgage-backed investments hit by the crisis is causing concerns over the resilience of banks, pressure in money markets and reduced credit availability. And investors who would usually come in to buy the discredited assets at knock-down prices are being hampered by a lack of funding.
The report calls for higher capital buffers among banks to strengthen balance sheets and deal with sudden downturns in markets. Some banks have already begun this process. Last week Royal Bank of Scotland called on shareholders for £12bn, while on Tuesday Halifax Bank of Scotland unveiled a £4bn rights issue
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