FSA warns of economic downturn

LONDON (Reuters) - The Financial Services Authority has warned the industry to brace itself for the possibility of a downturn similar to the 1990s recession, chief executive Hector Sants said on Saturday.

"We believe there is a possibility of a real economic downturn here and further continued difficulties in the credit market," Sants told the BBC.

"If you look at the consensus forecasts there's a strong possibility of further declines in UK house prices and this type of scenario needs to be built into firms' business models.

"When we come through that, history tells us that's not something that's going to play through in months. It's going to be well through the year-end."

Asked whether the downturn could be on the scale of the recession of 1990s when the economy took up to three years to recover, Sants told the financial industry to plan for the long rather than the short term.

"We'd expect people to plan on that type of assumption and we've been working with individual institutions to ensure we are comfortable with their longer term plans," said Sant. "We deem the longer term plan to be that sort of time horizon."

With the risks rising that the economy could enter its first recession since the early 1990s, Sants said too much credit had been available to consumers and called for an end to an era of "easy money" if and when the economy picked up.

"If people want to dampen down these cycles and to ensure banks are less likely to violently react in a downturn, to some degree they will have to accept there will be less on the upturn as well.

"We're looking to create the environment where there's the right amount of credit available to consumers."