Bank of England identifies threat in stability report

The Bank of England will today flag up the potential threat to insurance companies from the impact of the credit crunch.

In its twice yearly Financial Stability report the bank will point to insurers, hedge funds and emerging market economies as three areas of concern.

Aviva was the steepest faller in the insurance sector this week as shareholders waited for reassurance. Aviva has lost almost 45% of its value since October 14th over fears of defaults in its £25.6bn portfolio of corporate bonds could force it to raise more capital. John Gieve , the Bank’s deputy governor for financial stability said: “The financial system remains under strain.”

The report is to outline that a recession as severe as the 1990’s would lead to credit losses of up to £130bn for Britain’s six biggest financial institutions and possibly wipe out the entire government backed funding package.