In These New Times

A new paradigm for a post-imperial world

Banks ‘may need more state aid’, Bank of England warns

Posted by seumasach on May 14, 2009

“There is a big difference in practice between the levels of capital banks need to be stabilised… and those required to persuade banks to exhibit normal levels of risk-aversion. How big that gap is is impossible to say… but it looks as if it will be quite big.”

We have lost everything, unless we’re a bank, except that peculiarly Brit gift for understatement. Roughly speaking the above translates as: how much do we have to give banks in order that they lend something back to us? Quite a lot I’d say, old chap.

Mervyn King said although banks’ survival had been assured by recent bail-outs, they would not start lending freely unless more capital was pumped into their balance sheets.

Mr King said: “There is a big difference in practice between the levels of capital banks need to be stabilised… and those required to persuade banks to exhibit normal levels of risk-aversion. How big that gap is is impossible to say… but it looks as if it will be quite big.

“If the banks are going to continue as private sector entities they will naturally behave in a risk-averse way for a while… [The state] could put in more public sector capital but that has ramifications for the Governments’ shareholdings in banks.”

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