Bank Of England Offers Loans To Spark Economy

UK bank stocks risen strongly after the Bank England pledged to offer new, low-cost loans to encourage lending Britain's shrinking economy.

a speech in the City of London last night, the bank's governor Sir Mervyn King blamed eurozone crisis for "exceptional circumstances" which banks are struggling to borrow affordable rates from international markets.

Sir Mervyn said: "It would complement the Government's existing schemes, and tackle high level of funding costs directly. "It could, hope, be place within a few weeks."

response, shares in part-nationalised Royal Bank of Scotland and Lloyds banking Group were the biggest risers on the FTSE 100 early trading - up six and 4 per cent respectively. Barclays' share price rose 3%.

But there was some scepticism.

Banking commentator Iain Anderson told Sky News: "Given the stresses in system the moment, this is going have to be a very significant package to a difference.

"We're going to have to see detail, we're going to have to the numbers before we can work if it can make a difference."

The shadow Chancellor Ed Balls argued the bank and Treasury could not use the eurozone crisis an excuse for the shift policy.

He told Sky News it an admission that the UK economy's recovery had damaged by the coalition's lack of action to secure growth.

In his speech, the Chancellor also outlined Government's proposals to prevent future banking crises and protect depositors' and taxpayers' money in the of a banking collapse.

George Osborne told City grandees in Mansion House speech: "I believe that we have found a workable way solve I called the 'British dilemma' - protecting British taxpayers in a that does not make the UK uncompetitive as home of global banks."

New reforms to banking regulation, based the recommendations of the Independent Commission Banking, splitting high street and investment banks to ensure ordinary savers' money is protected risky investments going wrong.

Banks will also be to hold cash reserves worth 17% the value of their business to help them trading in the event a bank funding crisis as that which led to the collapse of Northern Rock in 2008.

But British banks will not have to hold extra reserves on of subsidiaries outside European Economic Area provided their UK businesses are not affected the collapse of those subsidiaries.

The banking industry has resisted the reforms arguing they will push the cost of business and that higher costs will have to be passed to customers who have grown accustomed free banking services.

Kevin Burrowes, UK financial services leader at PwC said: "We all want stable, highly competitive, customer focused UK banking sector.

"The very heavy burden of all this regulation and the management effort required address it could potentially our banks uncompetitive globally.

"The rapidly growing financial institutions emerging markets will seek exploit the opportunities this gives them."


Adapted from: Sky News, June 15, 2012.