LONDON Nov 29 Bank of England Governor Mervyn
King and Deputy Governor Paul Tucker held a news conference to
present the central bank's half-yearly financial stability
report on Thursday.
Also present were Andrew Bailey, head of the prudential
business unit of the Financial Services Authority (FSA) and Andy
Haldane, the Bank of England's executive director, financial
For an article about the report, see
Following are highlights of the news conference:
KING ON IMPROVED MARKET SENTIMENT
"Since we met in the Summer, sentiment in financial markets
has improved a little, supported by policy actions by a number
of central banks. But the underlying picture for global growth
remains weak and significant adjustments in both indebtedness
and competitiveness are still required in the euro area."
KING ON DANGER OF UNDERCAPITALISED BANKS
"Against that background, the Financial Policy Committee's
(FPC) primary concern has to been to ensure that UK banks have
sufficient capital to underpin the resilience of the banking
system so that they are on a solid footing to support economic
growth. The danger to be avoided is that of inadequately
capitalised banks holding back our recovery.
KING ON MISLEADING OFFICIAL CAPITAL RATIOS
"In judging that banks are adequately capitalised we need to
ensure that the reported capital ratios are in fact an accurate
picture of bank health. At present there are good reasons to
think that they are not. That uncertainty around capital
adequacy is in part responsible for low investment confidence in
KING SAYS PROBLEM OF UK BANK CAPITAL IS MANAGEABLE
"It's important to keep this judgment in perspective. The
problem is manageable and is already understood, at least in
part, by markets. But it does warrant immediate action."
KING SAYS FSA WILL TAKE ACTION ON FPC RECOMMENDATIONS
"The formal recommendation of the FPC, the only formal
recommendation on this occasion, shown on page 5 of today's
report, states that the FPC recommends that the FSA take action
to ensure that the capital of UK banks and building societies
reflects a proper valuation of their assets, a realistic
assessment of future conduct costs and prudent calculation of
KING: BANK CAPITAL CONCERNS SHOULD NOT REQUIRE GOVT TO PUT
NEW CAPITAL INTO RBS OR LLOYDS
Asked whether taxpayers should be concerned that they may
need to eventually stump up more money to achieve better capital
adequacy, King said: "No, I don't think the problem is on the
scale where it should concern taxpayers. The Treasury have made
it quite clear to the committee that they do not want to put
more capital into the banks that are partially state owned. And
then there are other ways for which it's possible for those
banks to meet our recommendation without any need for the
government to put in new capital."
KING SAYS INDIVIDUAL BANKS WILL CONSULT WITH THE FSA
"The key thing is that FSA will now that take this [clarity
to the investor community] forward with individual banks.
Individual banks will then be announcing actions themselves, as
to: first of all, how much they need to provide under these
three headings, and then secondly what actions they will take in
order to raise sufficient capital, or indeed to change their
KING ON "EXCEPTIONALLY CHALLENGING" ENVIRONMENT
"We continue to face an exceptionally challenging
environment for financial stability. The problems facing the
world economy are not ones that we or other UK authorities can
KING: IMPORTANT BANKS TAKE ADVANTAGE OF "BREATHING SPACE"
OFFERED BY FLS TO REINFORCE BALANCE SHEETS
"At present, a range of policy measures including the
Funding for Lending Scheme, have given banks a breathing space
in which to reinforce their bank sheets. It's important that
they take advantage of that breathing space.
KING SAYS LIKELY THE 13 BLN STG BANKS HAVE PUT ASIDE ON
CONDUCT ISSUES WILL HAVE TO RISE
"Banks have set aside an aggregate so far of about 13
billion pounds for conduct losses, but it's likely that figure
will have to rise, and will be sensible to make provision for
FSA'S BAILEY SAYS IMPORTANT UK BANKS USE "WINDOW OF
OPPORTUNITY" TO IMPROVE CAPITAL POSITION
"As a consequence of actions that have been taken over the
course of the last six months or so, particularly the
introduction of Funding for Lending and steps that we and the
FSA have taken, we have seen a change in funding conditions and
we do think there's a window of opportunity now to take these
sorts of actions - to take these sorts of actions more readily -
and it's important that we use that window of opportunity."
KING ON ACTIONS NEEDED TO REPAIR BANK CAPITAL
"This problem is manageable, perfectly manageable but it
requires some action now. If there is a problem, it's perfectly
manageable, don't just leave it in the hope, just deal with it
now, we can do it. There is no reason why the actions that need
to be taken can't be done fairly quickly without any damage or
difficulty for the UK banking system."
TUCKER ON WORK TO BE DONE ON FINANCIAL STABILITY REPORT
"There's a gem of work to be done. I'm doing it."
Tucker did not reply directly to a question about how he
viewed the appointment of Mark Carney as incoming BoE governor.
HALDANE SAYS ABOUT A THIRD OF COMMERICAL REAL ESTATE LOANS
SUBJECT TO FOREBEARANCE
"We do have a significant overhang of legacy loans,
commercial property loans, that account for fully half of all
corporate lending by UK banks. A sizeable chunk of those loans
we know to be subject to forebearance. A third, perhaps more, of
those loans are subject to forebearance and we think in some
cases there is evidence of those loans being under-provided
TUCKER DECLINES TO SAY WHETHER HE WILL SERVE FULL TERM
Questioner: "You said that you're doing your job at the
moment but do you intend to serve out your full term until
Tucker: "I am the deputy governor of the Financial
Stability, I am doing that job."
Questioner: "And do you intend to serve out your full term?"
Tucker, who had been favourite to succeed King before
Carney's surprise appointment, said nothing.
KING RESPONSE TO QUERY ABOUT HALDANE'S FUTURE
"Let me assure you that all the people around me here can
stay at the Bank for as long as they like, except for me."
HALDANE SAYS "NOT A FAG PAPER OF DIFFERENCE" BETWEEN HIM AND
CARNEY ON REGULATION
"If you were to put Mark and I's speech cheek-by-jowl, you
would find not so much as a fag paper of difference between them
on regulatory reform agenda."