Bank of England Warn Greece Threatens Financial Stability

        By Jason Douglas and Jon Sindreu
        LONDON--The Bank of England on Wednesday said the outlook for financial stability in the U.K. has worsened in recent days as the crisis in Greece intensifies.
        The BOE said in its twice-yearly Financial Stability Report that the risks associated with Greece and its failure so far to reach a deal with its international creditors have grown "acute," and threaten to trigger a selloff in financial markets that could ripple through to the wider global economy.
        The central bank reassured investors and the public that the direct exposure of British banks to Greece itself is small, equivalent to only around 1% of lenders' equity. But it warned firms' exposure to other indebted eurozone economies, which could come under renewed pressure if Greece stumbles out of the currency union, is greater.
        The central bank said it has been working with the U.K. Treasury and authorities across Europe to draw up contingency plans to shield the U.K. economy from harm. It didn't say what those plans were, but analysts say they are likely to include the provision of emergency lending to banks and other important parts of the financial system if other sources of funding dry up.
        "The U.K. authorities will continue to monitor developments and will take any actions required to safeguard financial stability in the United Kingdom," the BOE said in its report.
        Greece late Tuesday became the first advanced economy to default on a loan repayment due to the International Monetary Fund, marking a dangerous new phase in a debt saga that has dragged on for more than five years.
        Unless it can reach a deal with its European and international creditors that unlocks fresh financing, Greece risks defaulting on its debts and exiting the eurozone.
        Greece's debt woes were one of a handful of risks to U.K. financial stability identified by the BOE Wednesday.
        Others included the risk of a slowdown in emerging markets and the difficulties investors in some markets could face in buying and selling assets.
        On the domestic front, the BOE highlighted the yawning deficit in the U.K.'s overseas trade and earnings with the rest of the world as a possible risk if it becomes harder to finance. It also said cyberattacks pose a risk to financial stability, and asked firms to ensure they have plans in place to cope with an assault.
        Despite the risks at home and abroad, the BOE concluded that U.K. banks are broadly resilient, given their solid funding and modest growth in lending.
        Write to Jason Douglas at jason.douglas@wsj.com and Jon Sindreu at jon.sindreu@wsj.com
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        July 01, 2015 05:42 ET (09:42 GMT)

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