Bank of England warns of liquidity and credit risk problems
In its latest Financial Stability Report, released yesterday, the Bank of England said the UK financial system was still healthy, but warned that advances in financial engineering were exposing the system to the risk of a sudden decline in credit quality or market liquidity.
Low lending rates and narrow spreads also meant leverage was extremely high, which again increased the system's exposure to operational problems or the failure of a single entity.
The bank recommended that institutions should improve stress testing, develop their resilience to operational problems and improve crisis management.
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