13 July 2006
An explosion of personal debt could have catastrophic results on the British economy, the Bank of England has warned.
It also said that Britain's financial markets could be severely damaged by a sudden economic downturn as comfortable market conditions have encouraged them to extend levels of risk.
Publishing its financial stability report, the bank acknowledges the "remarkably resilient" nature of the UK financial system, but also warned that "plausible but unlikely" events such as a bird flu pandemic or an explosion of personal debt could be very damaging.
Sir John Gieve, the bank's deputy governor for financial stability, said: "This report demonstrates the resilience of our financial system but it also identifies some sources of vulnerability.
"Risk management in the financial sector has become much more sophisticated in recent years, but the pace of innovation and growth of financial markets is raising the bar. Firms need to continue to improve their stress testing against less favourable conditions."
He added: "We are working with the FSA (Financial Services Authority) and Treasury and authorities abroad to mitigate the risks."
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