Bank collapse fears stalk the UK

The collapse of a major financial institution has become one of the greatest fears for stock market participants in the UK, according to a survey by the Bank of England.

Respondents to the UK central bank's biannual Systemic Risk Survey reported their highest ever expectation of a "significant event" impacting country's stability, and named the collapse or failure of a financial institution among their top five concerns.

Other fears included continued sovereign risks and the possibility of an economic downturn and concerns relating to funding and regulation and taxes.

In 2008, the year in which US banking giant Lehman Brothers failed and the UK government took controlling stakes in Royal Bank of Scotland and Lloyds Banking Group, this fear had topped the list but had since receded. This year, however, it is back in the top five following the rescue of Franco-Belgian lender Dexia and the collapse of MF Global.

The Bank of England said in the survey: "Looking over a short-term horizon, 54% of respondents found the probability of a high-impact event to be high or very high in the 2011 H2 survey, 43% found it to be medium and only 3% found it to be low or very low."

The numbers were even more decisive over the medium term, with 60% of respondents considering a high-impact event very likely, while 34% thought it quite likely and 6% thought it unlikely.

Respondents to the survey included executives responsible for overseeing risk in 68 UK-based institutions including banks, hedge funds, building societies, large complex financial institutions, asset managers, reinsurers and monoline insurers. They responded to the survey between September 20 and October 21.

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