UK banks will have to refinance £800bn of debt

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JUST days after the Tory-led coalition’s ‘emergency budget’ declared war on the working class, the poor, the middle class, children and pensioners – with wage cutting, tax raising, benefit freezing, pension busting and work-till-you-drop measures – the Bank of England has warned that ahead lies a new banking crash and a deepening of the world slump.

Its Bank Of England biannual Financial Stability Report reveals a crisis-wracked situation that was and is completely inherently unstable.

It states that the European debt crisis is the ‘key risk’ to the UK’s banking sector and banks must build up their cash reserves in response, with the implication that bank-lending to industry will grind to a halt.

With fears of a Greek default mounting on a daily basis, the Bank of England states that, while UK banks have little direct exposure to the Greek banks, they have ‘substantial indirect exposure.

The Bank of England notes that the European debt crisis is scaring the markets, and as it worsens it will make them less willing to lend to anyone they consider risky, including the UK banks.

It fears that greater market fears will lead to falling prices for risky assets like corporate bonds, forcing UK banks to write down the value of their loans and other assets, causing them extremely heavy losses.

The consequent rise in interest rates will lead to a sharp rise in mortgage interest rates and see another huge property market crash, with the implication that large numbers of people will lose their homes.

In fact, the recent revelation that a Bank of England Monetary Policy Committee member had voted against keeping interest rates at 0.5 per cent and wanted to see a 0.25 per cent rise was enough to cause a panic in the stock markets, pointing to the critical nature of the situation.

As part of this situation, spending is declining. Already savings in 2009 outweighed the amount borrowed for the first time since the Bank of England’s records began, with £24bn saved compared with £20bn borrowed.

The banks themselves remain saddled with significant debts and face, says the Bank, a ‘substantial refinancing challenge’ over the coming years, as loans mature and emergency loans from the government are due to be paid back.

The Bank of England warns that ‘In the UK, the largest banks will need to refinance or replace around £750bn-£800bn. . . by the end of 2012.’

It states that a credible plan for refinancing will be needed beyond the reserves that the banks currently hold as an insurance against future problems.

In relation to current conditions, the Report notes that since December there has been a generalised retreat from risk-taking.

In response, the IMF and European authorities put in place a substantial package of support. ‘While these measures helped to stabilise conditions, market pressures have not yet abated.’

It adds: ‘UK banks need to maintain resilience in a difficult environment, while refinancing substantial sums of funding; they have a collective interest in providing sufficient lending to support economic recovery; and they will need over time to build larger buffers of capital and liquidity to meet more demanding future regulatory requirements. . . The new regime should include a buffer of capital which banks can use to absorb stresses, as well as a hard minimum. That buffer might need to vary over the cycle.’

The bankrupt UK banks are being asked to do what they are incapable of doing.

The crisis of capitalism is deepening and a greater banking, property crash and slump is approaching.

In this situation, the only real issue is the organisation of a socialist revolution to replace the bankrupt out-of-date capitalist system, which is deep into its death agony, with a socialist planned economy with production planned for human need. This the only way forward for humanity.