Wyvern Media News: Mervyn King warns UK banks must build financial strength

Wyvern Media News:

Mervyn King warns UK banks must build financial strength

Bank of England governor calls for bonus and dividend restraint to help cope with 'exceptionally threatening environment' posed by the eurozone crisis.

Britain's banks need to restrain bonuses and dividends to build up their financial strength in the face of the "exceptionally threatening environment" posed by the eurozone crisis, according to the Bank of England governor Sir Mervyn King.

In a stark acknowledgement that it was difficult to predict the outcome of the ongoing sovereign debt crisis, King admitted that he did not know how much capital banks would need to hold to build confidence and conceded that a credit crunch had already begun in the single currency area.

Presenting his half-yearly health check of the financial system, King stated that characteristics of a "systemic crisis" were already visible and that banks might even need to turn to their shareholders to raise more capital – even though they were already meeting all the regulatory requirements.

Citing continuing threats to the financial system, he conceded that he was calling on banks to bolster their financial strength – even though they were already much stronger than their rivals in mainland Europe.

Speaking the day after central banks around the world had stunned financial markets by pledging to make it easier for banks to be able to fund themselves, King stressed that the authorities were drawing up contingency plans for a breakup for the eurozone. But he refused to disclose what the plans might entail. "It's not a single event and none of us really know," King said.

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www.guardian.co.uk