Concern grows over British banks’ solvency

LONDON — The financial crisis has raised questions about the solvency of Britain’s banks that may lead the Bank of England to buy up assets from them within “weeks, not months,” the central bank’s governor, Mervyn King, said Tuesday.

In the text of a speech to be delivered in Nottingham, England, King said that the scale of the risks financial institutions indulged in over the last decade had become “painfully apparent” and that questions about the “adequacy of liquidity have turned into questions about solvency.”

Concerns about the future of Britain’s banks have sharpened over the last several days as both Royal Bank of Scotland Group and newly merged Lloyds Banking Group have seen their share prices tumble amid fears that one, if not both, will end up being nationalized.

King said the British government’s latest bailout of the banks, announced Monday, should help them reduce their debts without restricting lending to the wider economy.

But the problems will take a long time to resolve during a period when a “pronounced contraction in spending and output is underway.”

As a result, he said, the Bank of England will probably have to pursue “unconventional measures” because the disruption to the banking system has diminished the power of interest-rate cuts, central banks’ conventional instrument to boost the economy.