Bank of England warns of liquidity and credit risk problems

The rapid growth in credit markets meant risk monitoring and risk assessment could both have been harmed, and firms had become more dependent on the maintenance of market liquidity, the report said. "These drivers have potentially increased the vulnerability of the financial system as a whole," it added.

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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