Tougher banking norms needed to avoid liquidity crisis in future, says Bank of England

Nov. 4, 2008 - PRLog -- London (Shakespearefinance) : The BoE's bi-annual Financial Stability report has some tougher lending norms to be adopted by the banks in England in order to increase their capital base. It will decrease their dependence on wholesale funding. This in turn will enable them to hold bigger buffer of liquid assets.

The way the world economy has been gripped by shortage of credit, it certainly needs some rethinking on part of the banks in UK. The top bank, in its report, has suggested some harder rules and regulations for the banks so that they might become immune to such financial crisis as the one plaguing the world and UK economies presently. According to the figures put forward in the report, the present crisis has found the worldwide financial institutions losing as much as $2.8 trillion. Steeply rising from £62.7 billion, the losses in UK have gone up to £122.6 billion.

In fact, the Bank's Governor, Mervyn King, has declared that the present crisis equals the collapsing of the whole banking system as happened during the second world war. In order to avoid a critical recession of the nature of early 1990s, which might decimate the whole government-supported rescue packages, the Bank of England has requested some fundamental rethinking on the part of the banks. In the recent times, the BoE has injected about £20 billion in the bail-out packages for HBOS, RBS and Lloyds TSB. According to the report, the initial reaction to the package was a bit encouraging, but the long term prospects depend on the inherent lending norms to be prudently followed by the banks.

With most of the banks witnessing huge falls, the FTSE has tumbled down by more than 100 points in the recent months.


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