The Bank of England explained through the Financial Stability Report that risks to the United Kingdom financial stability from the two year debt crisis in Europe have intensified, while Banks must strengthen their financial positions in order to become prepared for any potential shocks.

The Bank of England said that sovereign and banking risks emanating from the euro area have intensified and remain the most significant and immediate threat to U.K. financial stability.

The Bank of England also explained that banks, if not earning enough to build capital, they should cut bonuses and dividends in order to raise an external capital and strengthen their positions.

The Bank also published today the recommendations of the Financial Policy Committee (FPC), where the Committee recommended the Financial Services Authority to encourage banks to disclose their leverage rations to investors with the start of 2013.

British banks have more than 15 billion pounds of exposure to the European debt crisis, and they also have significant exposure to the private sectors of Ireland, Spain and Italy, which worth around 160 billion pounds or 80% of the total core Tier 1 Capital.

The Central Bank said that U.K. banks have made significant progress in improving their capital and funding resilience, but added that progress has been set back recently and they have been affected by strains in bank funding markets.