The Bank of England warned Wednesday that global financial markets risks were on the increase, owing to rising debt levels in China and political uncertainty in Europe. 

In its regular report on global financial stability, published Wednesday in London, the Bank's Financial Policy Committee said tightening U.S. dollar funding conditions are increasing risks in some emerging markets and that trade tensions between the U.S. and China, as well as rising corporate debt levels in both of the world's biggest economies, are global vulnerabilities that are "material and have increased".

"In addition to risks stemming from global debt markets, the FPC judges that other risks to UK financial stability from the global economy remain material and have increased," the Bank said. "Political uncertainty led to sharp falls in Italian asset prices in late May. Asset prices have since partly recovered but the episode suggests rising risks in the euro area and underlines the vulnerabilities created by high public debt levels and interlinkages between banks and sovereigns in a currency union."

The report, which is designed to flag risks to the U.K. financial sector but is often seen a barometer for global market concerns, also joined the U.S. Federal Reserve in warning that banks were too reliant on Libor for their day-to-day funding.

"Continued reliance of financial markets on Libor poses a risk to financial stability that can be reduced only through a transition to alternative rates," the FPC said, echoing comments earlier this month from Fed adviser David Bowman, who warned banks to incorporate "better contract language that helps to mitigate your risks if LIBOR does fail."

The FPC also pushed backed against EU criticism of Britain's banking sector, saying domestic lenders held more than enough capital to weather any major upheaval triggered by the U.K. exit from the bloc in March of next year.

The FPC continues to judge that the UK banking system could support the real economy through a disorderly Brexit," the report said. "The UK is more vulnerable to a reduction in foreign investor appetite for UK assets, as the share of capital inflows vulnerable to refinancing risk has risen. And material global risks could spill over to the UK."