Thursday 25th October 2007
Stock markets around the world are still feeling the vibrations of problems in credit markets - including the recent credit crunch in the US sub-prime mortgage market - it has been warned.
According to the Bank of Englands latest Financial Stability Report, the resilience of the financial system in Britain is being tested by a global re-pricing of risk.
The report suggests that recent financial turmoil has "exposed vulnerabilities in the valuation and distribution of risks within the global financial system", disrupting some of the worlds largest and most liquid markets, affecting banks and increasing funding pressures.
In Britain, Northern Rock was forced to secure an emergency loan from the Bank of England last month to ensure liquidity, causing the first rush on a UK bank for 140 years.
Though some financial markets are now showing signs of recovery, the Bank of England warns that "a period of tighter credit conditions, especially for higher-risk borrowers, should be expected".
Sir John Gieve, Bank of England deputy governor for financial stability, commented: "There have been signs of recovery in recent weeks but some markets are still illiquid and the financial system remains vulnerable to further shocks.
"Some important lessons need to be learned by both financial institutions and authorities on liquidity risk management, valuation of complex instruments, disclosures of risk positions and on crisis management."
However, Charles Stanley economist and strategist Edward Menashy claims that a dip in the UK FTSE 100 share index on Monday is linked more to a traditional difficulty with October in the financial markets.
He points out that October 1987 saw the Black Monday stock market crash and the 1929 crash also occurred in October, Reuters reports.
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