Tyrie warns of liquidity crisis

The chairman of the Treasury Select Committee has urged the Bank of England and the Financial Services Authority to act to ensure that banks have enough liquidity to maintain lending.

Andrew Tyrie wrote to the Bank's Governor, Sir Mervyn King, and head of the FSA, Hector Sants, asking them to examine ways to raise the supply of stable funding to banks amid a liquidity drought triggered by the eurozone crisis.

He warned them by withdrawing emergency liquidity support too quickly they could stand accused of aggravating the financial crisis. In his letters, Mr Tyrie said: "The squeeze on bank liquidity is running the risk of continued credit contraction, setting back the prospects of economic recovery."