Another credit crunch in Europe is looking increasingly likely, according to US bank analysts, as the task of improving tier one capital before the June 2012 deadline has been hampered by faltering equity markets, which is leaving deleveraging balance sheets as the only credible option.

European bank deleveraging could hit €2.5 trillion over the next 18 months, according to analysts at Morgan Stanley this morning, meaning these institutions would have to shrink their loan and asset book significantly.