British and US banks placed on risk list

S&P said banks in mature economies, such as the US, the UK, Spain, the Netherlands and Ireland, are increasingly exposed to a fall in residential real estate. The agency is also concerned about levels of consumer and corporate indebtedness to banks in these countries.

But the agency added that the depth and timing of potential problems for these banks is hard to predict, and low interest rates and modest economic growth have protected financial institutions to date.

House price rises in many mature economies have outstripped both inflation and real-income increases, which S&P said is often a sign of an asset bubble developing. The level of mortgage borrowing in the UK now exceeds 60% of the country’s gross domestic product, and S&P expressed concern about equity risk exposures UK banks face with respect to their life assurance units. The agency said levels of credit expansion in the US also leaves banks vulnerable, but added that pressure on residential house prices was more limited to large metropolitan areas such as New York, Los Angeles and Washington DC.

S&P also identified eight banking systems already under stress. These included: Brazil, China, Egypt, Germany, Lebanon, Japan, Poland, Taiwan and Turkey.