Credit risks to the UK banking system
UK banks are exposed to credit risks through their lending to non-bank customers in the United Kingdom and overseas and through their counterparty credit exposures to domestic and foreign banks. Credit risks among some borrowers have receded as the global economic recovery has continued. But downside risks to growth persist in some countries as borrowers, including some governments, seek to strengthen their balance sheets.
In the euro area, a number of countries face pressures. The counterparty credit risk faced by UK banks on exposures to other major European banking systems has risen, including in France and Germany, because of their exposures to smaller countries in the region, as recently discussed in the Financial Stability Review published by the ECB. In the United States, banks remain exposed to any renewed deterioration in the US housing market. And in the United Kingdom, some parts of the household and corporate sector, including commercial property companies, remain highly leveraged and vulnerable to a setback to economic recovery or higher market interest rates.
Financial Stability Report
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