Brexit spurs Euro­pean banks to trim ex­po­sure to UK as­sets

The Star Malaysia - StarBiz - - Front Page -

LONDON: Euro­pean banks pared their ex­po­sure to Bri­tain in the af­ter­math of its vote to quit the Euro­pean Union (EU), slash­ing their UK as­sets by US$425bil in the span of a year.

The de­cline was driven by a 35% drop in de­riv­a­tives ex­po­sures, show­ing Euro­pean banks are pre­par­ing for the risk that the UK fails to reach an agree­ment on its fu­ture re­la­tion­ship with the bloc be­fore its de­par­ture.

Banks in the 27 other EU coun­tries had 1.59 tril­lion eu­ros (US$1.9 tril­lion) in to­tal as­sets tied to the UK at the end of June, about 356 bil­lion eu­ros less than a year ear­lier, data from the Euro­pean Bank­ing Au­thor­ity (EBA) shows. Bri­tons voted to leave on June 23, 2016.

More than one-third of banks ques­tioned by the EBA are wor­ried that Brexit could up­end de­riv­a­tives and other fi­nan­cial con­tracts, lead­ing to po­ten­tial losses and le­gal risks for banks. The EBA, which co­or­di­nates reg­u­la­tory stan­dards across the bloc, said firms need to pre­pare for a pos­si­ble cliff-edge, in which EU rules cease to ap­ply in the UK and a new agree­ment isn’t in place when the UK ex­its in early 2019.

“It is im­por­tant that banks and their coun­ter­par­ties, as well as con­sumers and pub­lic au­thor­i­ties, con­sider ap­pro­pri­ate mit­i­gat­ing ac­tions and con­tin­gency plans to ad­dress these con­cerns,” the EBA said in the re­port.

Reg­u­la­tors on both sides of the Chan­nel have sounded the alarm about the risks Brexit poses to de­riv­a­tives and other fi­nan­cial con­tracts.

The Bank of Eng­land has said a “com­pre­hen­sive so­lu­tion” is needed as part of the Brexit process to pro­tect the “long-term va­lid­ity” of £20 tril­lion (US$26.7 tril­lion) of ex­ist­ing de­riv­a­tive con­tracts.

— Bloomberg

As­set slash: A lap­top dis­plays a map of can­di­date city lo­ca­tions for the re­lo­ca­tion of the EBA in this ar­ranged pho­to­graph in Brus­sels, Bel­gium. More than one-third of banks ques­tioned by the EBA are wor­ried that Brexit could up­end de­riv­a­tives and other fi­nan­cial con­tracts, lead­ing to po­ten­tial losses and le­gal risks for banks.

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