UK central bank warns of 'vulnerability of banks'

21 December 2009

A number of banks around the world remain in a vulnerable position, the Bank of England (BoE) has warned.

In its latest bi-annual Financial Stability Report, the United Kingdom's central bank concluded that conditions in the financial system had improved significantly during the past six months.

However, it warned that many banks still faced risks due to the overstretched balance sheets they developed as a result of the "prolonged period of exuberance" seen across the industry in recent years.

"They will take time to adjust, and in the meantime remain vulnerable to the risk of less rapid than expected economic recovery," the BoE said.

It added that the refinancing needs of some sectors, in particular the commercial property industry, in the coming years could lead to "market participants accumulating excessively risky positions".

The BoE's warning came as the Federal Deposit Insurance Corporation announced the failure of a further seven banks in the US.

By Claire Archer

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