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Bank of England warns of further risks in financial sector
Oct 28, 2008, 8:39 GMT
London - The Bank of England (BoE) said in a report published Tuesday that losses suffered by global financial institutions since the credit crunch are estimated at 1.8 trillion pounds (2.8 trillion dollars).
Governments around the world have spent more than 750 billion pounds so far in coming to the aid of banks, the bank's biannual Financial Stability Report (FSR) said.
It warned that while pressure in money markets had eased slightly since the major government bail-outs, risks remained from highly borrowed hedge funds, which might have to sell assets quickly to meet rising costs, and insurers whose capital base could be eroded by falling share prices.
According to the report, up to 1.2 million homeowners in Britain could fall into negative equity if house prices fall by another 15 per cent over the coming months.
British banks faced a 'fundamental rethink' as a result of the current crisis and would have to accept a tightening of regulation, the BoE said.
The industry expanded too far in the good times without strong enough funding to cope when things turned sour, the report said.
To avoid a repeat of the banking crisis, banks could be reined in through a series of measures to ensure they had enough funds to survive without help during a downturn, it added.
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