LONDON (MNI) – The coordinated central bank move Wednesday, carried
out through a network of swap deals, was not designed to tackle any
specific problem arising from banks or sovereigns, Bank of England
Governor Mervyn King said.

The BOE head said that the aim instead was to bolster liquidity at
an exceptionally difficult time. There had been market rumours the move
was triggered by a Eurozone bank, or banks, running into difficulty.

At the press conference following the publication of December’s
Financial Stability Report King was asked if the BOE was making
contingency plans for the break-up of the euro area.

“As you would expect the Government along with the FSA and the Bank
of England are making contingency plans against a wide range of
contingencies,” he replied, but refused to elaborate on the detail of
these plans.

“We are not going to speculate in public about what the contingency
plans are,” he said.

King believes it is simplistic to think in terms of the euro area
breaking up or not breaking up, and contingency planning should cover a
wide range of scenarios.

“There are many different ways in which the future could play out.
Maybe it won’t break up, maybe it could continue in various forms but
maybe there will still be questions of default,” he said.

“None of us really know. I don’t think it makes sense to say that
there is a single well-defined event against which we have to make
contingencies,” King added.

He said the aim of the BOE’s Financial Policy Committee was to
make the UK financial system as resilient as possible to future shocks.

“We are determined to ensure the resilience of the UK banking
sector and it is that resilience that will make it much more likely that
markets will provide funding. Funding follows the absence of concerns
about solvency,” he said.

King said there were already signs of a credit crunch in the euro
area, but not yet in the UK, although he could envisage the mechanisms
that would trigger it here.

–London newsroom: 4420 7862 7491 e-mail: drobinson@marketnews.com

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