In the process, they are increasing the funding pressure on the Eurozone banks and their governments.
For their part, the Eurozone banks are trying to shed assets so as to meet the meaningless 9% Tier I capital ratio.
The result has been a regulator induced credit crunch.
French exposures were cut by £19bn in the third quarter to £178bn, while holdings of Italian and Spanish assets were cut by £8bn and £5bn respectively, according to figures released yesterday by the Bank of England.
The decision of UK banks to reduce their exposures to the troubled countries came as they upped their holdings in Northern European and US assets.
German exposures increased by £26bn, while Dutch were up £13.6bn. US exposures increased by £6.2bn.
Funding market conditions for eurozone banks continued to deteriorate this week despite the introduction by the European Central Bank of two long-term refinancing operations (LTRO) providing three-year funding.
Eurozone banks' shortage of collateral to borrow against has led the central bank to widen the pool of assets it will accept, however analysts warned the move could be a "fast-track to 'zombieville'".
" 'Excess' bank usage of the three-year LTRO runs the risk of creating more banks who are 'addicted' to ECB money – ie. the classic model of 'zombie' banks," said analysts at Barclays Capital. A 'zombie' bank is one which relies on central bank funding to survive.
Lenders are already attempting to reduce their balance sheets by selling trillions of euros of assets, as well as so-called "liability management" exercises to cut the size of their debt piles.
BNP Paribas, Lloyds Banking Group and Santander have all attempted with varying degrees of success to buy back or replace junior debt in an attempt to strengthen their core capital rations.