Bank says intervention should steady system

By Matt Falloon

LONDON (Reuters) - Global intervention should steady the banking system but it will also put big constraints on banks, the Bank of England said on Tuesday, six months after it said it expected confidence to return to financial markets.

In its twice-yearly financial stability report, the Bank also said actual losses may be much less than the $2.8 trillion (1.79 trillion pounds) currently priced into financial markets, reiterating a similar point it made in its April report -- before the credit crunch spiralled into the worst financial crisis in living memory.

"Exceptional interventions by governments and central banks should help stabilise the banking system in the period ahead," the Bank said.

"While there are still risks in the wider financial system, the immediate response to the measures has been positive."

Bank Deputy Governor John Gieve told the British Bankers' Association on Tuesday the financial crisis was not over, and international authorities needed to be ready to act again if necessary.

His speech made no direct reference to the outlook for monetary policy but most analysts expect the Bank to cut interest rates sharply over the next few months, starting with another 50 basis point cut to 4.0 percent in November.

"Authorities worldwide need to remain vigilant and to be ready to step in again if necessary," Gieve said.

In its April stability report, the Bank gave a fairly upbeat assessment of how severely the credit crunch would impact markets and the wider economy, but the central bank's latest report is more cautious.