{"id":3886,"date":"2011-12-01T15:27:30","date_gmt":"2011-12-01T15:27:30","guid":{"rendered":"http:\/\/www.ghanamma.net\/2011\/12\/bank-says-economic-climate-%e2%80%98extraordinarily-serious%e2%80%99\/"},"modified":"2011-12-01T15:27:30","modified_gmt":"2011-12-01T15:27:30","slug":"bank-says-economic-climate-extraordinarily-serious","status":"publish","type":"post","link":"https:\/\/www.ghanamma.com\/2011\/12\/01\/bank-says-economic-climate-extraordinarily-serious\/","title":{"rendered":"Bank says economic climate \u2018extraordinarily serious\u2019"},"content":{"rendered":"

\"\"<\/a><\/p>\n

Sir Mervyn King: “We must try to bolster the resilience of our financial system”<\/p>\n<\/div>\n

Banks should brace themselves to withstand the \u201cextraordinarily serious and threatening\u201d economic situation, the Bank of England governor has said.<\/p>\n

The Bank\u2019s Financial Policy Committee (FPC)<\/a> said the eurozone crisis was the biggest threat to the UK\u2019s banking system.<\/p>\n

It said banks should build up their financial buffers to withstand that.<\/p>\n

Bank governor Sir Mervyn King said the Bank itself was making \u201ccontingency plans\u201d in case of a eurozone break-up.<\/p>\n

However, he would not go into any details as to what these were.<\/p>\n

Sir Mervyn said it did not make sense to say that there was \u201ca single well-defined event against which we have to make contingencies\u201d.<\/p>\n

He said: \u201cThere are many ways in which the future could play out. Maybe it [the eurozone] won\u2019t break up, maybe it will continue in various forms, but maybe there will still be questions of default.\u201d<\/p>\n

On Wednesday, six central banks, including the Bank of England, took action to encourage lending between banks in order to keep the global economy moving.<\/p>\n

But Sir Mervyn said that, \u201cultimately, governments will have to confront the underlying causes\u201d.<\/p>\n

\u201cResolving these wider problems is beyond the control of any UK authority,\u201d he added.<\/p>\n

Earlier, president of the European Central Bank (ECB), Mario Draghi, told the European Parliament that \u201cdownside risks\u201d to the eurozone economic outlook had increased.<\/p>\n

Dividends and bonuses<\/p>\n

Sir Mervyn said that the UK\u2019s banks were among the strongest in the world, with tier 1 capital ratios \u2013 an internationally respected measure of a bank\u2019s strength \u2013 at well above 12%.<\/p>\n

That is higher than they were before the credit crisis began in 2008.<\/p>\n

Sir Mervyn said one way for UK banks to gain further strength would be to raise money by issuing new shares.<\/p>\n

The FPC also said that banks should keep lending, but should cut dividends and bonuses in order to help build up their financial reserves.<\/p>\n

Some bankers argue that tighter capital requirement rules mean lower lending, as banks are forced to hang on to assets as a contingency, rather than pass it on to borrowers.<\/p>\n

The chief executive of Royal Bank of Scotland, the bank now majority-owned by the UK government, said recently that strict regulation meant investors saw UK banks as a \u201cdumb\u201d place to invest, and that it limited banks\u2019 ability to lend.<\/p>\n

The FPC is chaired by Sir Mervyn, and at present only has an advisory role.<\/p>\n

Once the legal framework is in place, it is expected to become the country\u2019s top financial regulator from the start of 2013.<\/p>\n

BBC<\/strong><\/em><\/p><\/p>\n","protected":false},"excerpt":{"rendered":"

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