The banks behind the lending boom that came to a spectacular end last summer are now hindering the recovery of the financial system by being too cautious, the Bank of England has warned. Lenders are so fearful of further credit crunch losses that the return of confidence to markets is being hit, according to the Bank’s latest Financial Stability Report (FSR). Sir John Gieve, the Bank’s deputy Governor in charge of financial stability, said markets were facing a “protracted and difficult” adjustment following the end of the credit boom. While some credit tightening was “desirable”, the conservatism over losses on mortgage-backed investments hit by the crisis is causing concerns over the resilience of banks, pressure in money markets and reduced credit availability, the report said. Borrowers and would-be homeowners across the country have also felt the strain of the new-found caution among lenders as banks hike up the cost of lending and demand bigger deposits at a time of rising inflation and falling house prices. read more

Filed in: Cash Lenders