In its regular assessment of the U.K. financial system, the BOE said while banks are in a stronger position now, “challenges remain.” Risks related to Greece are “particularly acute” after the collapse of bailout talks last week, it said in the semi-annual Financial Stability Report, published in London on Wednesday.

The Greek situation “remains fluid, and it is possible that a deepening of the Greek crisis could prompt a broader reassessment of risk in financial markets,” Carney told reporters. The BOE has been in “almost continual contact with our European colleagues” on Greece in the last two weeks, he said.

The comments came after Greece, which introduced capital controls on Monday, missed a payment to the International Monetary Fund. Greek Prime Minister Alexis Tsipras has offered to accept proposals from the nation’s creditors to end a standoff over its bailout program, subject to certain conditions.

“If this press conference had taken place two weeks ago, we would have balanced the risk to financial stability against the increased resilience of the U.K. system, and of the U.K. economy as well, and we would have said at that point that broadly speaking the outlook for financial stability was unchanged from December,” Carney said.

‘Well Insulated’

“Events in Greece have tipped the balance to the outlook has worsened,” he said.

Carney said the U.K. “is relatively well insulated from the direct consequences of events in Greece.” British banks’ “exposures to Greece are very small relative to their capital bases. The footprint of Greek banks in the UK is tiny compared to the size of our economy,” he said.

The central bank said it has has “worked closely” with the U.K. Treasury, the Financial Conduct Authority and European counterparts to put in place contingency plans, without providing details. Chancellor of the Exchequer George Osborne has said that no one should underestimate the knock-on effects that a Greek exit from the euro would have on Britain. In a statement on Wednesday, he said “we hope for the best; but we prepare for the worst.”

Carney said a “series of defenses” built up in the euro area and the rest of the European Union in recent years have helped to mitigate the impact of the Greek turmoil.

Risk Appetite

“Those defenses may be tested depending on how events unfold, but to the extent to which those are effective, a persistent impact on risk appetite and therefore on economic activity is unlikely,” he said.

The FPC also noted risks related to liquidity. A shock from Greece or elsewhere could lead to a repricing of risk in markets. In its analysis, that could freeze markets, create illiquidity and undermine lending to the real economy. It would also threaten the resilience of banks.

The FPC previously raised concerns about liquidity at its March meeting and is awaiting a report in September. On Wednesday, it announced it’s planning a “regular deep analysis” of non-bank activities, including hedge funds, investment funds, derivatives transactions and insurers.

“The compensation for bearing credit and liquidity risk in some markets has declined by more than may be warranted by the future economic and financial environment,” it said. “Market participants should be alert to these risks” and “price liquidity appropriately.”

Cyber Attacks

While Greece dominated the FPC’s report, the committee also highlighted risks related to a slowdown in emerging markets, particularly China. Domestically, it noted the current-account deficit, the housing market and potential cyber attacks on financial institutions.

In relation to property, it said while debt to income levels have declined, they remain high compared to historical norms. In that context, the FPC said the measures introduced a year ago to curb riskier mortgage lending remain warranted.

On the current account, the BOE tempered its warning by saying that while the deficit is large, there are no additional risks related to how it’s financed. It also noted the flexible exchange rate could act as a stabilizer in the event of a shock.