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Last Updated: Thursday, 20 September 2007, 21:33 GMT 22:33 UK
Banks 'should show sub-prime hit'
FSA chairman Callum McCarthy
Callum McCarthy says the UK's main banks are coping well
The UK's banks should indicate their exposure to the US sub-prime mortgage sector, the head of the Financial Services Authority has said.

The watchdog's chairman, Callum McCarthy, said clarity over the scale of the problem was needed to help the credit markets return to normal.

Record US sub-prime loan defaults have caused a global credit crunch.

This is because banks are unwilling to lend to each other until everyone's exposure to the problem is fully known.

Mr McCarthy said banks should reveal their exposure, whether direct or indirect.

'Banks coping well'

Despite the ongoing credit problems, Mr McCarthy added in his speech at the Mansion House in the City of London that the wider economic background "remains benign".

And despite the well-publicised problems at Northern Rock, he said that the UK's main banks are well capitalised.

"They have capital ratios which remain significantly higher than regulation requires," he said.

"Their return on equity is at levels which many competitors envy; while they may be subject to liquidity pressures, they have, with a single notable exception, coped well with these pressures to date."

Mr McCarthy was speaking after Bank of England Governor Mervyn King appeared before the Treasury Committee to explain the Bank's handling of Northern Rock and the wider recent credit problems.

Mr McCarthy is now due to go before the Treasury Committee on 9 October.

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