Mark Carney fears UK at risk from Greek contagion

 
Tim Wallace
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Greek demonstrators protest against EU-imposed austerity measures
Britain's banks and insurers could be in danger if Greece leaves the Eurozone, the Bank of England warn­ed yesterday.

The UK is not heavily exposed to Greece itself, but if it exits the single currency then it could cause financial panic in other indebted economies like Spain and Italy, which would then hit Britain hard.

“The impact via the direct financial and trade exposures to Greece was likely to be relatively small,” said the minutes of the Financial Policy Committee (FPC), which is chaired by Bank governor Mark Carney.

“Nevertheless, were Greece and its Eurozone partners to be unable to reach an agreement, more significant effects could arise. Although UK banks had reduced their exposures to highly indebted euro-area economies in recent years, exposures to these countries were still significant: equivalent to just over 60 per cent of UK banks’ [capital buffers].”

Meanwhile, the FPC said it is keeping a close eye on the commercial real estate market, as rising prices are pushing banks to increase loan-to-value ratios.

“If this trend were to continue, past experience suggested that UK banks could quickly become less resilient to stress in these markets,” the FPC said.

And on the wider economy, the Bank said it is looking into the UK’s record current account deficit, caused by an imbalance of trade in goods.

“The current account deficit was large and could, in adverse circumstances, trigger a deterioration in market sentiment towards the United Kingdom. The committee agreed to keep their assessment of this risk under close review and would monitor the maturity and liquidity of the financing of the deficit,” it said.

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