Britain's banks have shrunk their lending exposure to peripheral euro zone counterparts by a quarter in just three months, it was reported today. .

According to data compiled by the Financial Times, the big four UK banks cut interbank loan volumes by more than 24 per cent to £10.5 billion in the three months to end-September, as Europe's debt crisis worsened.

UK's "Big Four" of HSBC, Lloyds, RBS and Barclays reduced sharply their volume of loans to Greek and Spanish banks, continuing an earlier pattern, but the Italian loan slump was new.

HSBC, the biggest supplier of credit to other banks, also cut its exposures the most sharply with a 40 per cent overall decline in interbank loans to the region. It eliminated lending to Greek banks, and slashed Spanish and Irish volumes by about two-thirds, according to the data.

None of the UK's big four banks were available for immediate comment.

Italy's new government has announced far-reaching reforms in response to a European debt crisis that yesterday pushed borrowing costs for France and Spain sharply higher, and brought tens of thousands of Greeks onto the streets of Athens.

With the turmoil growing, euro zone banks are finding it harder to obtain funding. While the stresses are not yet at the levels during the 2008 financial crisis, they have continued to mount despite ECB moves to provide unlimited liquidity to banks.

Reuters