Jill Treanor: Eurozone Banks Nearly Collapsed!

Benoit Coeure says conditions were very dangerous in autumn of 2011, and banks faced severe difficulties to fund themselves. A senior executive at the European Central Bank has admitted 'euro-zone' banks were on the brink of collapse last autumn. In an interview with the BBC to be broadcast on Thursday, Benoit Coeure, executive director of the ECB, said: "In the autumn of 2011, the conditions were very dangerous: European banks were facing severe difficulties to fund themselves, to access finance, and we were very close to having a collapse in the banking system in the euro area, which would have also led to a collapse in the banking system in the euro area, which would have also led to a collapse in the economy and to deflation. And this is something that the ECB could not accept." The concern about the state of the banking system led to C1tn being lent to banks through three-year loans and came as UK banks were told to make preparations for a potential exit from the single currency. In November Andrew Bailey, the Financial Services Authority's top regulator, told banks: "We must not ignore the prospect of the disorderly departure of some countries from the eurozone." Those contingency plans are now being dusted down amid speculation over a Greek exit. British banks have taken steps to reduce their exposure to Greek government bonds and other loans. Icap, the City currency broker, is ready to reintroduce a drachma trading facility by installing a new panel on its electronic screens. Michael Spencer, its chief executive, said: "I don't think it's going to happen in the next week, but I think it's going to happen."