‘Eurozone crisis biggest risk to Britain’

The Bank of England’s Financial Policy Committee (FPC) says the eurozone’s fiscal crisis has posed the biggest threat to the Britain’s financial stability.

“The most serious and immediate risk to the UK financial system stems from the worsening sovereign-debt crisis in several euro-area countries,” the FPC revealed.

Speaking at a press conference, Bank of England governor Sir Mervyn King, who also chairs the FPC, said that “greater transparency” from British banks could limit exposure to the eurozone debt crisis, insisting this transparency had to be a “permanent part of major banks’ reporting.”

King said that the UK banks’ direct lending to eurozone’s crisis-hit countries including Greece, Portugal and Ireland was limited.

He cautioned that the banks might be at risk as they have lent to the economically crippled countries’ private sector and had extensive claims on assets in France and Germany, where banks are more deeply entangled in the eurozone’s weaker economies.

The official also warned that the indirect exposure and a loss of investor confidence would bring about more serious problems for Britain.

“Experience has shown that contagion has spread through financial markets, especially when there is uncertainty about the precise location of exposure,” King said.

“Greater clarity about the extent of these exposures would help limit the transition of problems to UK banks,” the FPC governor added.

Accordingly, King urged every bank should make clear what its exposure was, to help the committee make sure all British banks “are being strengthened in terms of their capital reserves and what they can withstand.”