Banks Require Further Support
Tuesday, October 28, 2008 19:41
As economic recession bites, the banks in the UK now may need more support from taxpayers. The Britain’s banks may need to raise capital beyond the taxpayer-underwritten money of £50 billion, which is already earmarked for them.
According to Times news, the Bank of England’s report into financial stability suggests that a recession as severe as the one in early 1990s would lead to credit losses of £130 billion for Britain’s six biggest financial institutions. This loss will possibly wipe out the entire government-backed funding package.
In the report, the Bank of England concluded that the initial response to the bailout was encouraging. However, it also gave warning to the market that risks to financial stability lingered. Hedge funds, insurance companies and emerging market economies are flagged up as three areas of potential concern. The report also revealed that UK-supervised banks have suffered mark-to-market losses running at £10billion a month in the past six months.
Over time against the economic downturn’s backdrop, banks need to adjust their balance sheets and funding models, weaning themselves off current high levels of official sector support. As a result, the lending growth is likely to remain slower than it used to be in the recent years.
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