BoE: Corporate banking vulnerable to European upheaval

The Bank of England (BoE) has said corporate banking in the UK remains vulnerable to instability in the European economies due to the interdependence of the continent's financial system.

In its biannual Financial Stability Report, Britain's central bank stated the re-emergence of problems for some countries alongside an element of contagion across the region could affect the domestic economy.

Investors have turned to safer assets such as government bonds and turned away from riskier alternatives in the wake of the recent upheavals, the institution added.

The BoE urged financial bodies to adopt the Basel III capital requirements - which mean banks must have at least seven per cent equity in relation to assets - through retaining more of their profits.

Recommended policy reforms in the report included tightening regulations to alleviate the problems associated with the failure of big financial institutions.

A key risk to the UK financial system rep could be low bond yields in the advanced economies which may lead to the search for yield intensifying, potentially causing a drop in asset values, the study added.ADNFCR-2318-ID-800298441-ADNFCR