Banking Crisis
UK Faces Further Instabilty And Pain For Borrowers – Bank Of England Report

The UK’s financial system faces further instability, with the well-being of insurers and hedge funds on the list of current worries, the Bank of England has said in its twice-a-year Financial Stability Report.
Sir John Gieve, deputy governor for financial stability, said: “With a global economic downturn under way, the financial system remains under strain.” He described the instability in the world's financial system as “the most severe in living memory.”
The report also said: “One risk is that leveraged investors, like hedge funds, may be forced to liquidate asset holdings due to tight credit conditions” and that hedge funds have recently faced “additional funding pressures due to redemption requests and a risk is that these could increase”.
Meanwhile, insurance companies, while not overleveraged, could present other potential problems, especially if their investments fell below capital adequacy rules. Credit ratings agency downgrades would undermine their liquidity because counterparties to any derivative trade would want more collateral or higher charges.
The report also said that, in the long term, banks must cut back their lending sharply and that recent transfusions of taxpayers’ money can only be a temporary measure aimed at making that process easier: “For example, even after accounting for recently announced capital-raisings, which the UK government will help underwrite, the largest UK banks would need to shed around one-sixth of total assets to reduce leverage back to, say, 2003 levels.”
Sir John called for a “fundamental rethink” of how regulators deal with risks in the global financial system and also spoke about the need to restrict banks’ ability to increase lending.