View the article online at http://citywire.co.uk/money/article/a596551
The Friday Five: why banks are causing a panic
'It's an ugly picture,' says Mervyn King, governor of the Bank of England, speaking about the alarming state of the banking crisis.
1. Things are worse than we thought
To quote Meryvn King: ‘it’s an ugly picture’.
The UK is back in recession as we know, but in an exceptionally grim annual Mansion House speech last night the Bank of England governor warned that conditions have deteriorated even further since the inflation report only four weeks ago, with ‘weakening business surveys, a downward revision to measured output and further slowing in economies overseas’.
A slowdown in China, India and other ‘previously buoyant emerging economies’ such as Brazil, meanwhile, is adding to the gloomy outlook.
The problem is, explained Andrew Tyrie, chairman of the Treasury Select Committee, the British economy cannot fully recover until banks recover and begin lending more at reasonable rates.
2. The eurozone crisis is escalating
The impact of the escalating euro-area crisis on our banking system has our economy's leaders seriously concerned.
The rise in banking costs since the crisis intensified last year highlights the exposure of our major banks to periphery economies, King warned.
‘Any significant re-denomination of their currencies, or a default on domestic debts, would, both directly, and as a result for all our economies, put a dent in the capital position of our banks,’ he said. ‘As a result, investors demand a higher premium on loans to banks, pushing up the cost of borrowing for home-owners and businesses.’
The crisis has also created a ‘large black cloud of uncertainty’ – making it near impossible to quantify the risks of five or 10-year investments.
All eyes are now on the Greek elections this weekend, while Spain continues to battle to avoid a full-scale sovereign bailout.
3. Banks aren't lending
Before the financial crisis credit was too easily available, now the opposite is true, said King.
Data from the Bank of England shows that lending to small and medium-sized businesses – which he described as the ‘backbone of our economy’ – has fallen consistently since mid-2009.
News sponsored by:
Making the most out of Europe's potential means seeing things differently. Learn more about how BlackRock's focused approach to investing in Europe helps investors unlock the continent's vast potential.
In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
More about this:
More from us
- Banking reforms: Osborne supports 'robust ring fence'
- Q&A: Spanish banking crisis
- Banks promised new aid in 'funding for lending' plan
What others are saying
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add firstname.lastname@example.org to your safe senders list so we don't get junked.