Bank believes worst of crisis is over
THE Bank of England said today that worst of the global economic crisis is over and warned that banks are in danger of self-fulfilling a financial meltdown by being too cautious.
The Bank’s latest Financial Stability Report (FSR) says lenders are so fearful of further credit crunch losses that the return of confidence to markets is being hit.
The report predicts the gradual return of confidence over the coming months – but the financial system does remain vulnerable to risks.
Deputy Governor John Gieve said: “While there remain downside risks, the most likely path ahead is that confidence and risk appetite will return gradually in the coming months.”
The FSR said that while some credit tightening was “desirable”, the conservatism over losses on mortgage-backed investments hit by the crisis is causing concerns over the resilience of banks, pressure in money markets and reduced credit availability.
Investors who would usually come in to step up and buy the discredited assets at lower prices are being hampered by a lack of funding, according to the report.
The cautiously optimistic outlook comes as the US Federal Reserve cut interest rates by a quarter to 2%.
The report calls for higher capital buffers among banks to strengthen balance sheets and deal with sudden downturns in markets.
