Banks of Great Britain were left alone with global crisis

UK banks became the target of a new wave of recession

In brief: UK banks are under intense pressure after the government declared the insolvency of financial institutions. Who will return concessional loans?

Because of the credit crunch in Europe, the UK banks can not be returned to the Government funds allocated during the financial crisis. If this situation drags on, it is possible revision of the plan of support. Financial institutions must find a new source of funding for repayment of state credit of approximately $ 300 billion British pounds, issued by the Government and the Bank of England. His term expires early next year. Lack of funds intended to cover the expense of Debt Capital Markets, however, according to the protocol of the May meeting of the Committee on monetary policy released this week among officials is growing concern that the crisis banks are not able to get financial support from the bonded investors.

Throughout April the banks raise funds in debt capital markets, but in light of recent events they have lost access to the source of funding “- reads the minutes of the meeting of the Committee on monetary policy. “If this situation drags on, it will complicate the process of debt restructuring. In support of the banks friendship enacted two programs: “Special plan to improve liquidity” and “Plan of collateral. In accordance with the first program, the Bank offers to exchange the infamous mortgage securities totaling about 185 billion pounds in the highly liquid treasury bonds of the Bank of England. Under the second program, the Government allocates 134 billion pounds of bonds to provide financial institutions to spur demand for the debt market, which has not forgotten about the bankruptcy of Lehman Brothers. At the new location effect of these programs are not covered. The maturity of a large part of the assets prinyavschih part in the Special Plan to increase liquidity “and” Plan of collateral, comes in the next two months. The volume of these assets up 23% of UK GDP for 2009. Council of Mortgage Lenders has said the new government on deficit financing debt. According to the representative of the Council in the near future they will seek a dialogue with ministers to discuss ways to solve problems which face the market when the action program to stop. According to the Council of Mortgage Lenders, under the circumstances, is unlikely to get the desired level of the debt capital markets. “We were told that the extension program is not scheduled, however, we believe that it is necessary to introduce a new method of support”, – said the representative of the Council. “We are ready to accept any form of support. The most important thing to help banks get off the needle of public funding. Earlier this year, the agency Moody’s Investors Service warned that as soon as the program will cease to have effect, the housing market will feel the pressure, as lending institutions tighten lending terms in response to the problem of financing the debt. Market securities, asset backed securities, which normally helps banks to cover debts, still feverish after the credibility of these instruments was finally compromised with the advent of mortgage crisis in the U.S.. And he simply can not provide the desired amount. It was expected that the game will enter the bond market and the big banks will share the burden. However, he suffered badly from the credit crisis in Europe, which has been undermined investor confidence, and increased cost of servicing the national debt. It has been five long weeks since, as someone or able to sell bonds in the market that can not but cause concern.

Mortgage bonds – a much less risky and cheaper option securities, asset backed securities, allowing the issuing bank to keep on the balance sheet mortgage assets. They have also been proposed as a source of funding. However, the market has reached saturation point and is hardly able to digest the volume of funds needed to fill the gap. Some banks have taken additional measures to alleviate the pressure. Banking group Lloyds Banking Group (LYG) was one of those who managed to attract a decent amount of funds to debt capital markets. According to the bank, he is going to reduce the balance in the next few years to avoid having to refinance most of the credit for the 157 billion pounds, provided by the State and the Central Bank in the support programs. A significant portion of these funds the bank received a “special plan to increase liquidity” and “Plan of collateral. But reducing the balance – this is not a better solution, especially when officials try to stimulate bank lending and support the growth of the real estate market. Bank of England head Mervyn King ruled out the possibility of extending the “Special plan to improve liquidity and financial officials say they are working with lenders to provide a reliable scheme to refinance debt in the next two to three years. But the central bank is firm in its position that it is a last resort, not a first, respectively, the cost of servicing debt for the banks may grow. It seems that officials are determined to find a way out of this situation. Newly appointed Assistant Chancellor George Osborne, Britain’s Treasury said in an interview with Dow Jones, that the Conservatives fully recognize the importance of this problem for financial institutions. “We know about its existence and believe that financial institutions should be given time to enable them to cope with it” – he says.

Anrey Torbinski
2010-05-21 19:28, Economics.

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