Fears over stability of UK financial sector escalate

Fears that the UK financial system could be about to experience a destabilising shockare at their worst since the fall of Lehman Brothers, according to a Bank of England survey of risk managers.

The Bank's twice yearly Systemic Risk Survey, conducted between 20 September and 21 October, shows that 88 per cent of respondents thought the probability of a "high-impact event" in the near future had increased. Around 18 per cent of those questioned said the risk of such a shock was "very high", up from zero in the first half of the year. Some 37 per cent put the risk as "high", up from 15 per cent.

The risk of a sovereign default and a return to recession were cited as the gravest dangers to financial firms by 76 per cent of respondents. A danger that banks would be unable to fund themselves in the wholesale capital markets was cited by 57 per cent. Some 38 per cent pointed to the risk of new regulations and taxes, while around 26 per cent cited the risk of a financial institution failing. Fewer respondents cited the risk of corporations failing, a collapse of house prices and inflation.

Confidence in the stability of the UK financial system as a whole has deteriorated. The survey found that 59 per cent of respondents reported falling confidence over the past six months, while around 28 per cent were "not very confident". Only 15 per cent said they were "very confident".

The Bank's Financial Policy Committee regulator meets today to consider the safety of UK banks and financial firms.