Page last updated at 17:22 GMT, Monday, 28 November 2011

Treasury Committee: Sir Mervyn warns of EU deleveraging

The eurozone is at risk of a new credit crunch as banks reduce their exposure to riskier investments, Bank of England governor Sir Mervyn King has said.

As the Commons Treasury Committee put questions to Sir Mervyn on 28 November 2011, the governor said that deleveraging - the consolidation of balance sheets - was more marked among European banks than their British counterparts.

"I don't think it's as bad here as it is in the euro area economy, where I would say the view amongst my peers is that already in the euro area economy the deleveraging of euro area banks is leading to early signs of a credit crunch, with concerns that it will get worse," King said.

He added: "I think there are many things that could happen if developments in the euro area get worse and I honestly don't think it makes much sense to pretend that we know precisely know how this will play out.

"What we have to do is to be ready and prepared with contingency plans and to make sure that, as far as possible, that our banking system is as robust as possible to withstand whatever shocks that may come from the euro area from whichever sort or origin they come from."

Sir Mervyn appeared at the committee along with Bank official Paul Fisher and monetary policy committee members Martin Weale and Ben Broadbent.

Treasury committee membership

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