BoE Governor sends warning shot on bank lending

by Gill Montia

Story link: BoE Governor sends warning shot on bank lending

The Governor of the Bank of England has sent a warning shot in the direction of UK banks that are benefiting from a taxpayer-funded bail out or Treasury guarantees but are not keen to increase their lending.

Speaking to the Treasury Select Committee this morning, Mervyn King outlined the danger of the UK economy entering a steep recession if the commercial banks hold back from their normal lending levels.

He suggested that the Government may have to intervene directly to ensure this happens, pointing out that banks have not been rescued for their own sakes but rather because of their role in the extension of credit.

When questioned about the possibility of nationalising banks Mr King said this could not be ruled out but is unlikely to be the first option.

The Governor is also open to the possibility that High Street banks may require more than the £37 billion so far pledged by the Government in return for stakes in Royal Bank of Scotland, Lloyds TSB and HBOS.

On inflation, Mr King advised the Committee that the likelihood of inflation falling below the Government’s 2% target, in the medium term, had increased significantly in recent weeks.