King warns euro debt crisis is 'most serious and immediate' threat to UK
The Governor of the Bank of England, Sir Mervyn King has called on UK banks to come clean on their exposure to the euro debt crisis warning that “contagion can spread through financial markets.”
Sir Mervyn was presenting a report on the first year of the Financial Policy Committee (FPC) and gave details of a six-point plan to protect the banking sector.
The FPC is charged with identifying and monitoring systemic risks and making recommendations to regulators and financial institutions to mitigate risks.
With this in mind Sir Mervyn spoke about his concerns over the sovereign debt crisis that is engulfing Greece and other eurozone countries like Portugal and Ireland.
He said: “The most serious and immediate risk to UK financial systems stems from the worsening sovereign debt crisis in several euro area countries. Direct UK exposure is limited but experience has shown contagion can spread through financial markets.”
This could see UK financial institutions affected by their involvement with German and French banks whose exposure is much greater. Sir Mervyn called for British banks to provide a much more transparent view of debt exposure in the future saying that this would help stop financial lenders becoming too fearful of lending to financial institutions because of fears over potential exposures to troubled markets.
Sir Mervyn called for British banks open reporting on debt exposure to become a permanent part of their financial statements. He said: “Greater clarity about the extent of these exposures would help to limit the transmission of exposure to UK banks and should be permanent.”
The FPC can only make recommendations at this stage and a further point made by them was that the Financial Services Authority (FSA) should publish an estimate of smaller institutions, which are not subject to stress tests, exposure to debt.
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