Bank of England says banks may need more money

LONDON: Bank of England Governor Mervyn King told British lawmakers on Tuesday that banks could require more capital injections before they are able to resume lending, a problem he defined as the biggest challenge facing the country's financial institutions.

"We may not have come to the end of recapitalization," King told a Treasury committee. "We should not shy away from that if that proves to be necessary.''

"The single biggest challenge is to get the banking system to resume lending," he added.

The government has already committed 37 billion pounds to recapitalize three of Britain's largest banks.

King also gave his approval to the government's pre-budget report, which Treasury head Alistair Darling announced on Monday.

Darling unveiled a package of 20 billion pounds (USD 30 billion) of fiscal stimulus measures--which amounts to around 1 per cent of Britain's gross domestic product. The package included some tax cuts, increases in tax credits and welfare payments, and brought forward 3 billion pounds of capital spending planned for 2010 to now.

Darling defended the spending plan today against criticism from the main opposition Conservative Party that it was taking a "huge risk" with public finances.

George Osborne, the Conservatives' Treasury spokesman, told BBC Radio that the spending plan was a "reckless gamble" that would lead to a "trillion-pound" public debt.

In defense, Darling told GMTV that the government "could not just walk away from people, leave them high and dry, let them sink or swim".