The Bank of England was criticised in the City yesterday for being too optimistic about the prospects of an end to the credit crisis.

Citigroup accused the Bank of being 'self-congratulatory' about its efforts to ease the cash shortage in banking.

The banking giant said the pain triggered by the U.S. sub-prime crisis will remain "severe" for some time to come, adding that the Bank was being "too sanguine" about the outlook.

The criticism was prompted by the Bank's twice-yearly Financial Stability Report, which said banks have become excessively pessimistic about the losses stemming from U.S. mortgage meltdown.

In the report, deputy governor Sir John Gieve said that "while there remain downside risks, the most likely path ahead is that confidence and risk appetite will return gradually in the coming months".

The report acknowledged that there are risks of further shocks in the financial system, but it said predictions from the International Monetary Fund that banks could rack up nearly $1trillion of losses are overblown.

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