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Banks 'need a rethink' on risks Banks 'need a rethink' on risks
(about 3 hours later)
UK banks could face new measures to avoid a repeat of the current credit crisis, the Bank of England has said.UK banks could face new measures to avoid a repeat of the current credit crisis, the Bank of England has said.
Its bi-annual Financial Stability Report (FSR) said there may be a "need for a fundamental rethink of how to safeguard against systemic risk".Its bi-annual Financial Stability Report (FSR) said there may be a "need for a fundamental rethink of how to safeguard against systemic risk".
Bank deputy governor Sir John Gieve said that meant increasing capital and liquidity requirements at institutions. It now estimates that the losses suffered by global financial institutions total £1.8 trillion.
Recent global bank bailouts have included a £37bn rescue of Royal Bank of Scotland, HBOS and Lloyds TSB. Meanwhile, the US Federal Reserve is to begin a two-day meeting to decide whether to reduce interest rates again.
Last week Bank governor Mervyn King said the British banking system had been closer to collapse earlier this month than at any time since the start of World War I. Recent UK bank bailouts have included a £37bn rescue of Royal Bank of Scotland, HBOS and Lloyds TSB.
He also said that a "little more boredom" would be no bad thing for the industry. The Bank of England 's new estimate on global losses is double the estimate that it published in May.
Bank deputy governor Sir John Gieve said the "fundamental rethink" meant increasing capital and liquidity requirements at institutions.
'Stronger restraints''Stronger restraints'
According to the FSR report, the UK banking industry expanded over-rapidly when times were good, but without a solid foundation to cope when things turned bad.According to the FSR report, the UK banking industry expanded over-rapidly when times were good, but without a solid foundation to cope when things turned bad.
Mr Gieve said: "Looking further ahead, we need a fundamental re-think of how to manage systemic risk internationally. Mr Gieve said: "Looking further ahead, we need a fundamental rethink of how to manage systemic risk internationally.
"We need to establish stronger restraints on the build-up of risks in the financial system over the cycle with the dangers they bring to the wider economy.""We need to establish stronger restraints on the build-up of risks in the financial system over the cycle with the dangers they bring to the wider economy."
Measures mooted in the FSR include a "leverage ratio", which would peg back the growth in banks' balance sheets to the size of their capital.Measures mooted in the FSR include a "leverage ratio", which would peg back the growth in banks' balance sheets to the size of their capital.
Another suggestion is "dynamic provisioning", which would encourage banks to build up their reserves or take out insurance against having to seek funding injections.Another suggestion is "dynamic provisioning", which would encourage banks to build up their reserves or take out insurance against having to seek funding injections.
'Funding gap''Funding gap'
The report points out that in 2001, UK customer lending was comparable to customer deposits.The report points out that in 2001, UK customer lending was comparable to customer deposits.
But by the first half of 2008 the surplus of lending over deposits - "the customer funding gap" - was £700bn.But by the first half of 2008 the surplus of lending over deposits - "the customer funding gap" - was £700bn.
The FSR estimates governments worldwide have spent more than £750bn so far in coming to the aid of banks.The FSR estimates governments worldwide have spent more than £750bn so far in coming to the aid of banks.
The report said banks should strengthen their finances by increasing customer deposits, holding more assets that are easy to sell and reducing reliance on wholesale money markets.The report said banks should strengthen their finances by increasing customer deposits, holding more assets that are easy to sell and reducing reliance on wholesale money markets.
Last week Bank governor Mervyn King said the British banking system had been closer to collapse earlier this month than at any time since the start of World War I.
He also said that a "little more boredom" would be no bad thing for the industry.
Meanwhile, the US Federal Reserve is widely expected to sanction a cut of 0.5% in its interest rates, bringing its rate down to 1%, the lowest level since 2001.
Analysts expect that this move will lead to further cuts in interest rates in European banks.