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Fri, Sep 14, 2007 - Page 10 News List

UK treasury chief urges return to `old-fashioned banking'

AP , LONDON

Britain's Treasury chief, underscoring official concern about shaky loan portfolios, has urged banks to rein in easy credit in favor of "good old-fashioned banking," a newspaper reported yesterday.

Chancellor of the Exchequer Alistair Darling, in an interview with the Daily Telegraph, echoed a warning from Bank of England Governor Mervyn King that banks and borrowers would have to be responsible for their own problems.

Shrinking credit levels started with rising defaults in US subprime mortgages -- home loans to people with weak credit histories. The crisis has spread because banks have repackaged risky loans with the more reliable, and sold them to investors including several European banks.

In Britain, the key three-month interbank lending rate, or LIBOR, now sits at 6.9 percent -- more than a full percentage point above the 5.75 percent base rate and just above the Bank of England's emergency lending rate of 6.75 percent -- as banks grow increasingly wary of lending to rivals and becoming more exposed to the crisis.

"Primary responsibility has to rest with people," the Daily Telegraph quoted Darling as saying.

"In crude terms they need to know who they're lending to, how much they're lending and what the risk is," he said.

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