Banks have £136bn exposure to Japan

The estimate from the Financial Services Authority (FSA) comes as the country battles to stave off a nuclear meltdown following its devastating earthquake and tsunami.

But the FSA said it was "too soon" to estimate the scale of losses for insurers from the disaster.

Its comments follow fears over a mammoth claims bill for insurers, which has sent shares in the sector plunging since last Friday's events.

News of the banking exposure also comes at a difficult time for the sector, which has been left reeling on concerns over vulnerability to debt-laden Portugal - which suffered a credit ratings downgrade.

The FSA said it was trying to establish the total impact Japan's disaster will have on the UK's financial sector. The £136 billion bank exposure estimate, which is based on Bank of England figures, includes loans to Japanese firms in Britain and holdings in Japanese government debt.

David Rule of the FSA's prudential risk team, said: "The risk we think is manageable on the banking side. On the insurance side it's early days."

One estimate earlier this week put the potential claims bill from just the earthquake at as much as £22 billion.

Reinsurers - which insure insurers - are thought to be most at risk, with concerns 2011 profits could be completely wiped out as the Japanese tragedy adds to a series of recent natural disasters, including the New Zealand earthquake and Australian floods.

Shares in Catlin, a Lloyd's insurer, have fallen 8% in the past week, while fellow groups Beazley and Hiscox have slumped 9% and 4% respectively since last Friday. AP