Tuesday, November 22, 2011

UK financial institutions grow fearful of 'high impact event' on financial system

As the run from Eurozone sovereign debt and banks continues, a Guardian article reports a decline in confidence at UK financial institutions.

Specifically, these institutions see a much higher probability of a 'high impact event' in the UK financial system.

Leading the way is sovereign risk -- which would explain another source of selling pressure on Eurozone sovereign debt.

It is perhaps not surprising that big City firms surveyed by the Bank of England are worried about the impact of the eurozone crisis and a sudden economic downturn might have on the financial system. 
But when set out in black and white in the Bank's latest systemic risk survey, the findings might seen slightly alarming. 
Asked about their confidence in the UK financial system over the next three years, and how their confidence levels had changed over the past six months, the responses show that confidence has fallen sharply. 
A net balance of 59% respondents reported decreased confidence, which was conducted between 20 September and 21 October 2011 of 68 major firms, such as banks, building societies, hedge funds and insurers. 
The perceived probability of a "future high-impact event" in the UK financial system increased sharply in the second half of 2011, compared with the first half of the year, and was reported to be at the highest level since the survey began in July 2008. 
The five risks reported most frequently by respondents to have the greatest impact on the UK financial system if they were to materialise were: 
• sovereign risk (cited by 76% of respondents)
• the risk of an economic downturn (76%)
• funding risk (57%)
• risks around regulation/taxes (38%)
• the risk of financial institution failure/distress (26%).

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