Outlining how financial stability was the priority for his second term in office, the governor of the Bank of England has warned that the financial crisis "is not yet over".
In a speech to the British Bankers Association, Mervyn King also acknowledged that since the crisis broke last August, the Bank has had disagreements with commercial lenders about how to respond. "During my second term as governor I would like to see us establish a framework for financial stability that is on as sound a footing as the one we have successfully established for monetary stability," he said, adding that the BoE would learn from the experience of a temporary scheme launched in April - where banks can exchange hard-to-trade assets for more liquid ones - to create a new facility.
"Any such facility will need to meet two challenges: it will need the right pricing structure and it will need to overcome the "stigma" problem that has affected access to all central banks during the current crisis."
Mr King then delivered a stark warning – his gloomiest to date of the prospects for British homeowners – that the financial excesses of recent years will lead to misery for many. The governor said the recent financial "party" of cheap credit and excessive risk-taking has left a situation where "when the party ends, some innocent bystanders may lose their homes altogether."