King was quizzed by MPs at the Treasury select committee yesterday and refused to rule out threatening the banking sector with wholesale nationalisation as a last resort if they continue to hoard capital.
King said: “Given what we have seen, it would be an extremely brave person that would rule anything out. It’s unlikely to be the first option.”
Business Secretary Peter Mandelson is also reported to be drawing up plans to stop banks from changing loan terms to small businesses at short notice by getting them to sign up to a code of practice.
He told the Financial Times: “It is completely unacceptable to the Government and to business in this country for banks indefinitely to stop functioning as banks. We are in very intensive discussions with the banks, believe me.”
The Chancellor Alistair Darling is seeking to give banks greater clarity over capital adequacy requirements, so that the institutions that have recently recapitalised do not have to retain all their new capital as a buffer and can start lending again.