The governor of the Bank of England has given his starkest warning that
banks in what he calls the advanced economies, including British banks, still
have too little capital to absorb potential losses on bad loans. And he says
that the economy will remain weak till they raise the needed capital.
He commented that the reason banks, including some British banks, have
found it difficult and expensive to borrow, and therefore have found it
impossible to provide the credit needed by households and businesses, in the
right quantities and at the right price, is that they have "insufficient
capital".
Sir Mervyn warns that "just as in 2008, there is a deep reluctance
to admit the extent of the under-capitalisation of the banking system in many
parts of the industrialised world".
Here is his stark and gloomy warning: "I am not sure that advanced
economies in general will find it easy to get out of their current predicament
without creditors acknowledging further likely losses, a significant writing
down of asset values and recapitalisation of their financial systems."
He continues: "Only then will it be possible to return to a more
normal provision of vital banking services so crucial to an economic
recovery".
As the Banks continue to labour under the
weight of their previous errors the knock on effects are percolating down
through the economy.
With both
new and additional funding hard to access – now is the time to take a long hard
look at your Company’s financial situation.
Any
approach to your Bankers could be very uncomfortable in the current climate so
it is necessary to demonstrate you have full control of your exposure. Make
sure that the Debtors book makes for healthy reading and that inventory control
and stock turn are being monitored very closely.
Ironically
it is the activities of Banks themselves who have once again precipitated the
ongoing crisis but that will not prevent them from playing hard ball with
anyone trying to seek support for additional funding in the current climate.
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