Bank of England says credit fears overstated
Published May 1st, 2008
Banks have overstated their exposure to mortgage-linked investments and could delay an end to the credit crunch as a result, the Bank of England says.
In its Financial Stability Report, it said fears of financial meltdown may become a self-fulfilling prophecy.
Banks previously over-willing to lend were now too cautious, even with credit-worthy borrowers, it suggested.
The worry is that by being too cautious, banks may deprive consumers and companies of much needed financing.
An increased fear of risk, prompted by a drop in the value of investments linked to mortgages, has undermined confidence in financial institutions and made them reluctant to lend to each other and consumers, the Bank added.
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