Bank of England Governor Mervyn King said the financial crisis hasn’t gone away as banks continue to work to shore up their balance sheets and turmoil in Europe continues.
“To me it still does feel like a crisis,” King told a panel of lawmakers in the House of Lords in London today. “The financial sector is not back to normal.”
The Bank of England expanded stimulus last month to aid the recovery and King said U.K. policy makers haven’t made a decision on whether more so-called quantitative easing will be needed. He also said the 17-nation euro region still has to deal with underlying problems such as competitiveness and deficits.
“It will take a number of years before we are through all this,” King said, though “I see no economic reason why we cannot in the long run go back to the sort of growth rates we had before.”
Asked about U.K. banks and lending to smaller companies, King said they “clearly face immense pressure in funding markets to reduce leverage.” Banks “are not refusing to lend just for the hell of it, they’re facing much higher funding costs,” he said.
While the European Central Bank’s three-year loan program has created a “window of opportunity,” it remains to be seen whether officials in the euro area will use the time it’s bought to tackle their problems.
“The difficulty is that windows of opportunity have been created regularly for over two years, and nothing seems to have gone through the window,” King said. “But hope springs eternal. I don’t know whether they will take advantage of it or not.”
On the prospects of the Bank of England expanding its asset-purchase program, he said, “I don’t know whether it’s going to be required or not.” The Monetary Policy Committee raised the plan’s ceiling by 50 billion pounds ($80 billion) in February to 325 billion pounds and will complete the additional purchases by May.
“We do make a fresh judgment each month,” he said. “We are prepared to change our mind each and every month. If we were to do more, it would be in conventional gilt purchases.”
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