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December 17, 2010    

Bank of England warns over euro zone debt crisis

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by Kay Murchie

In its latest half-yearly Financial Stability Report, the Bank of England has highlighted the uncertainty surrounding the euro zone debt crisis - suggesting it could be a threat to UK banks.

The central bank expressed its concern for the ongoing debt situation in the 16-member nation - primarily because UK banks have significant investments in many of those countries and specifically their banks.

The Bank of England suggested banks cut back on dividends and bonuses, in order to strengthen themselves against such risks by retaining profit to boost their capital base.

Yesterday, meanwhile, at an EU summit, EU leaders agreed to establish a permanent mechanism to bailout any nation whose large public deficits threaten the region.

Greece and Ireland have already been the recipients of multi-billion pound bailouts from the EU and the IMF and some have expressed concern that Portugal and Spain could be next in line for a bailout as borrowing costs soar.

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