Eurozone crisis could harm Britain's financial system: Bank of England

The Bank of England today warned that the Eurozone debt crisis could potentially harm Britain's financial system and asked banks to shore up their reserves.

The bank's Financial Stability Report, praised the €750-billion EU-IMF stabilisation fund, put together last month to prop up the euro after the Greek debt crisis sent a scare through the markets. But, BoE warned of continuing "market pressures" that could harm Britain's financial system.

"The IMF and European authorities put in place a substantial package of support," it said, adding, "While these measures helped to stabilise conditions, market pressures have not yet abated."

Though Britain is not a member of the 16-nation Eurozone, the bank said the exposure of the country's financial system to institutions entangled in the currency crisis was a major danger.

It noted Britain's financial institutions were under risk when dealing with European banks directly exposed to countries facing increased sovereign risks.

The report, which is published by the bank twice annually, also voiced fears of investors retreating from risk in the wake of the crisis, which could hit banks' ability to renew billions of pounds in existing funding.