(Bloomberg) --
The Bank of England warned that traders are still taking risks at “elevated” levels, over a year after the market ructions in the early stages of the Covid-19 pandemic.
“Asset valuations could correct sharply if, for example, market participants re‐evaluate the prospects for growth, inflation or interest rates,” the central bank said in its routine quarterly assessment of risks in the financial system published Friday.
The BOE's financial policy committee also said risks in the leveraged loan market continued to build, with “signs of continued loosening in underwriting standards and increased risk-taking in some investment banking businesses,” though it stressed that U.K. lenders were resilient to direct losses.
The report said U.K. corporate debt vulnerabilities have increased “moderately” over the pandemic, but that loan repayments are still affordable for most British businesses.
British firms racked up around 80 billion pounds ($109 billion) of debts backed by the government during the pandemic. Some firms are now due to repay these loans, with banks reporting low levels of distress so far.
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