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Banks 'were close to collapsing' Banks 'were close to collapsing'
(about 3 hours later)
The UK banking system was closer to collapse earlier this month than at any time since the start of World War I, Mervyn King has warned.The UK banking system was closer to collapse earlier this month than at any time since the start of World War I, Mervyn King has warned.
But speaking at an event in Leeds, the governor of the Bank of England said the UK had "turned the corner", thanks to the government's bail-out package.But speaking at an event in Leeds, the governor of the Bank of England said the UK had "turned the corner", thanks to the government's bail-out package.
He said the £50bn recapitalisation plan would slowly lead to a resumption of normal levels of bank lending.He said the £50bn recapitalisation plan would slowly lead to a resumption of normal levels of bank lending.
Yet Mr King agreed "it now seems likely the UK is entering a recession".Yet Mr King agreed "it now seems likely the UK is entering a recession".
'Sticking plaster''Sticking plaster'
Returning to the event that sparked the recent global banking crisis - US investment bank Lehman Brothers filing for bankruptcy protection on 16 September - Mr King said it was wrong to blame Lehman for starting a chain reaction.Returning to the event that sparked the recent global banking crisis - US investment bank Lehman Brothers filing for bankruptcy protection on 16 September - Mr King said it was wrong to blame Lehman for starting a chain reaction.
Let me extend an invitation to the banking industry to join me in promoting the idea that a little more boredom would be no bad thing Mervyn KingLet me extend an invitation to the banking industry to join me in promoting the idea that a little more boredom would be no bad thing Mervyn King
"It would be a mistake, however, to think that had Lehman Brothers not failed, a crisis would have been averted," he said."It would be a mistake, however, to think that had Lehman Brothers not failed, a crisis would have been averted," he said.
"The underlying cause of inadequate capital would eventually have provoked a crisis of one kind or another somewhere else.""The underlying cause of inadequate capital would eventually have provoked a crisis of one kind or another somewhere else."
While praising the swift work by global central banks to increase liquidity in the banking system, Mr King said this would never have worked on its own.While praising the swift work by global central banks to increase liquidity in the banking system, Mr King said this would never have worked on its own.
"Central bank liquidity is sticking plaster, useful and important, but not a substitute for proper treatment," he said."Central bank liquidity is sticking plaster, useful and important, but not a substitute for proper treatment," he said.
Mervyn King paints a bleak picture Read Hugh Pym's analysisMervyn King paints a bleak picture Read Hugh Pym's analysis
Instead, Mr King said the part-nationalisation move by the UK government and other administrations was the only action that could cure the banking crisis, by restoring banks' capital bases.Instead, Mr King said the part-nationalisation move by the UK government and other administrations was the only action that could cure the banking crisis, by restoring banks' capital bases.
"We are far from the end of the road back to stability, but the plan to recapitalise our banking system, both here and abroad, will I believe come to be seen as the moment in the banking crisis of the past year when we turned the corner," he said."We are far from the end of the road back to stability, but the plan to recapitalise our banking system, both here and abroad, will I believe come to be seen as the moment in the banking crisis of the past year when we turned the corner," he said.
Yet he cautioned that it "will take time before the recapitalisation leads to a resumption of normal levels of lending by the banking system to the real economy".Yet he cautioned that it "will take time before the recapitalisation leads to a resumption of normal levels of lending by the banking system to the real economy".
Especially as he said the "age of innocence" of cheap lending between banks "will not quickly, if ever, return".Especially as he said the "age of innocence" of cheap lending between banks "will not quickly, if ever, return".
Falling inflation?Falling inflation?
Turning his attention to the wider UK economy, Mr King said the most recent economic data pointed to a recession.Turning his attention to the wider UK economy, Mr King said the most recent economic data pointed to a recession.
He highlighted unemployment rising at its fastest rate for 17 years, and the recent falls in house prices.He highlighted unemployment rising at its fastest rate for 17 years, and the recent falls in house prices.
But moving on to inflation, he said there were welcome signs that it would come down from the "worryingly high rate" of 5.2% in September.But moving on to inflation, he said there were welcome signs that it would come down from the "worryingly high rate" of 5.2% in September.
He said this was thanks to recent falls in energy prices back from the record highs of July.He said this was thanks to recent falls in energy prices back from the record highs of July.
While Mr King said the Bank of England was committed to bringing inflation back towards the government's 2% target, he more than hinted that there would be no rate rises for the foreseeable future.While Mr King said the Bank of England was committed to bringing inflation back towards the government's 2% target, he more than hinted that there would be no rate rises for the foreseeable future.
King: 'It now seems likely the UK economy is entering a recession
He said the Bank would continue to set rates "to meet the 2% inflation target, not next month, or the month after, but further ahead, when the impact of recent developments in both credit supply and world commodity prices will have worked their way through the economy".He said the Bank would continue to set rates "to meet the 2% inflation target, not next month, or the month after, but further ahead, when the impact of recent developments in both credit supply and world commodity prices will have worked their way through the economy".
Concluding his speech by returning to the banking sector, he said he hoped for quieter times ahead.Concluding his speech by returning to the banking sector, he said he hoped for quieter times ahead.
"I have said many times that successful monetary policy would appear to be rather boring," he said."I have said many times that successful monetary policy would appear to be rather boring," he said.
"So let me extend an invitation to the banking industry to join me in promoting the idea that a little more boredom would be no bad thing.""So let me extend an invitation to the banking industry to join me in promoting the idea that a little more boredom would be no bad thing."
Mr King was speaking at a dinner organised by the CBI, Institute of Directors, Leeds Chamber of Commerce and the Yorkshire Forward business support agency.Mr King was speaking at a dinner organised by the CBI, Institute of Directors, Leeds Chamber of Commerce and the Yorkshire Forward business support agency.