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Financial stability committee warns of £1trn refinancing conundrum

The financial stability committee has warned that over the next five years £1trn will need to be refinanced in private markets internationally at a time when banks are trying to rebuild their balance sheets and bolster capital.

The warning comes in the minutes of the committee meeting on January 14, which was attended by the Chancellor Alistair Darling, Bank of England governor Mervyn King, City minister Lord Myners, FSA chairman Lord Turner and outgoing chief executive Hector Sants as well as other FSA, Bank of England and Treasury staff.

At the meeting Turner warned that the UK needs to be careful of getting too far ahead of other countries in regulatory reform, while King said that the UK is more aligned with the US than Europe on forcing banks to hold higher capital.

The minutes say that banks need to continue with their process of “deleveraging and balance-sheet repair”.

But the minutes say: “If this was done by curtailing lending to the non financial economy, those repair efforts would ultimately be counter-productive.

“More than £1trn needs to be refinanced in private markets in the next five years and banks internationally have considerable work still to do to deal with this issue. The UK authorities should require all banks to draw up concrete refinancing plans.”

On the difficulty of reaching international consensus King said: “The UK, for example, is closer to the US than some of the other larger European countries in arguing for higher capital and liquidity requirements.”

On regulatory reform, Turner said “the FSA was aiming to steer a middle path by being at the forefront internationally, but not getting too far ahead of other countries”.

Turner also said that “simpler and less risky” forms of securitisation are needed in order for the financial markets to function effectively.

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