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PPI: Banks took absurd risk, says King

UK banks took on an absurd level of risk in the lead up to the financial crisis, according to Bank of England Governor Mervyn King.

At a financial conference in New York, Mr King claimed that the banks over-reliance on short-term debt to fund projects was an "accident waiting to happen".

He said: "For all the clever innovation in the financial system, its Achilles heel was, and remains, simply the extraordinary - indeed absurd - levels of leverage represented by a heavy reliance on short-term debt.

"The broad answer to the problem is likely to be remarkably simple. Banks should be financed much more heavily by equity rather than short-term debt. Much, much more equity. Much, much less short-term debt."

Mr King was also critical of the proposed £2.5 billion bank levy, claiming that the tax would not raise enough to cover the losses of another financial crises.

Posted by Jennifer Haines

Jennifer's speciality knowledge is credit card changes and balance transfers ADNFCR-2776-ID-800159066-ADNFCR



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