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Banks must lend, says King

Mervyn King, the governor of the Bank of England, has urged the UK banks to start lending in an attempt to curb a deep recession.

He told the Treasury Select Committee today: “I am in no doubt that the single most pressing challenge to domestic economic policy is to get the banking system to get lending in any normal sense. That is more important than anything else at present.”

King warned of a “steep” recession without lending resuming, and said banks would end up facing even bigger losses on bad loans if lending did not resume.

King also hinted that capital adequacy could be relaxed in an attempt to get lending moving in the UK

He said: “These are precisely the times when you would think it appropriate to reduce the minimum capital requirement – I think it is of the utmost importance that tripartite authorities make it crystal clear that regulatory minimum requirements are not being raised, and if anything in these circumstances might be lowered.”

King also commented on yesterday’s pre-Budget report. He says the £20bn stimulus “will act to mitigate the slowdown” in the economy.

He also commented on the Crosby report, which looked into resurrecting the wholesale mortgage markets, of which King has been a long-time sceptic. He said: “I’m all in favour of finding ways of encouraging a sustainable rate of mortgage lending but I’m not entirely confident that the best way to do this is to resurrect a form of lending that for rather good reason has fallen out of favour.”

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