Eurozone debt biggest threat to UK says watchdog
The Eurozone’s debt crisis poses the biggest threat to Britain’s financial stability and banks must come clean on their full exposure, Britain’s new risk watchdog said.
The Financial Policy Committee, which is operating in an interim capacity until legislation is passed next year, also turned up the heat on banks to use strong profits to boost capital cushions.
However, it stopped short of placing curbs on profit payouts to shareholders as US authorities have done.
“It does not make sense to place an arbitrary limit,” Bank of England Governor and FPC Chairman Mervyn King told a news conference. “What matters is to put in the capital.”
Bank shares prices showed little reaction to the report, holding onto gains made after Greece won the consent of international lenders for a five-year austerity plan to avoid bankruptcy.
King said a roadmap was still needed to show markets there was a way out of the Greek crisis, and the watchdog’s report focussed heavily on the risks posed by high-indebted euro zone states.
“Sovereign and banking strains are the most material and immediate threat,” it said.
“Market concerns remain over fiscal positions in a number of euro area countries and the potential for contagion to banking systems.”
King warned that opaque instruments, such as exchange traded funds, needed closer scrutiny.
Hector Sants, chief executive of the Financial Services Authority and a member of the new watchdog, said he would ask European regulators if the rules on exchange traded funds needed to be tightened.