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The Bank of England is becoming increasingly alarmed about reckless lending by
banks, according to its twice-yearly Financial Stability Review.
In the review, the Bank claims that a continuing accumulation of debt and an
aggressive search for yield by investors poses a significant risk to the
stability of the entire financial system.
It highlights the relaxed lending
criteria by banks and increased demand for highly leveraged financial products,
such as mortgage-backed securities, that lead to future problems if an
unforeseen shock hits the financial system.
Sir Andrew Large, the Bank's Deputy Governor, commented: “The UK financial
system remains healthy and near-term risks appear limited ... but I believe
vigilance is still called for.
"We must remember that the financial environment
is now more complex, opaque, interconnected and leveraged, so a wholly benign
outcome may not be a foregone conclusion.”
The review highlights as a potential shock events including the downgrading of
the credit-worthiness of General Motors and Ford earlier this year.
Although such events had only a short-lived impact on resilient credit markets,
the review says a fresh shock could destabilise the financial system.
Source:
Credit Control Journal
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