Bank of England Warn of Trouble Ahead for Banks

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Bank of England Warn of Trouble Ahead for Banks

Fri, 26 Jun 2009

The Bank of England has warned that banks are still at risk despite being given £8.6 trillion of taxpayers money as a means of support. The Banks latest Financial Stability Report cautioned that companies continue to make hefty write-downs on bad loans and other assets, severely damaging bank balance sheets. The Bank reckons the UK to have a potential £1.26 trillion exposure from banking sector interventions to support the sector, amounting to 88 per cent of the country’s annual output.

The Bank warned that the impact of such write-downs will continue to hamper a recovery. Such write-downs could be particularly problematic for banks given the £800 billion funding gap – the difference between loans and deposits – they continue to suffer. Banks have recently begun raising interest rates on savings accounts in an attempt to attract savers as they look to lessen the deficit.

Another means of filling this void is to issue debt under the governments £250 billion credit guarantee scheme, though despite these avenues, it may still need to find £500 billion from other sources by 2013 as the level of public support decreases. Governor of the Bank of England, Mervyn King, warned that steps must be taken to ensure banks don’t become reliant on public support.

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