By Andrew Hurst, European Banking Correspondent
LONDON (Reuters) - A prolonged credit crunch could sap the risk appetite of banks, prompting them to rein in lending and possibly undermine the buoyancy of the real economy.
Bankers and analysts attending the Reuters Finance Summit said as banks become increasingly distracted by sorting through and writing down exposures to mortgage-backed securities, the mainstream business of lending to clients could suffer.
"Potentially what will change is the risk appetite of players so far as new products, risks and innovation (are concerned), and potentially the risk appetite of the banking system," Sergio Ermotti, deputy CEO of Unicredit (CRDI.MI: Quote, Profile, Research, Stock Buzz), said at the summit held at Reuters offices in London on Tuesday.
Problems banks face in writing down exposures are likely to be a major preoccupation for some time to come.
"We still don't know where the $200 to $250 billion of subprime losses are. We need clarity on who is sitting on what exposure," said Huw Van Steenis, head European banks analyst at Morgan Stanley.
But the potential impact of the crisis on economic growth was starting to loom larger.
"Will the liquidity and credit crisis bring down growth in the U.S. and will that bring down the world economy? This is the issue which investors are very much grappling with," said Van Steenis.
A repricing of risk which has taken hold as a credit crisis has unfolded, triggered by the unraveling of U.S. subprime mortgages, is driving up funding costs for banks, which are passing those costs on to borrowers. Continued...
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