Business Standard

Brexit spurs EU banks to trim UK assets

- SILLA BRUSH

European banks pared their exposure to Britain in the aftermath of its vote to quit the European Union, slashing their UK assets by $425 billion in the span of a year.

The decline was driven by a 35 per cent 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 ($1.9 trillion) in total assets tied to the UK at the end of June, about ^356 billion less than a year earlier, data from the European Banking Authority 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 pounds ($26.7 trillion) of existing derivative contracts. European Central Bank President Mario Draghi has similarly warned that contract continuity could be imperiled.

“Tens of thousands of counterpar­ties could be affected, representi­ng around a quarter of both UK and EU client uncleared derivative contracts,” the BOE said in September.

Many banks with offices in the UK have already announced plans to shift positions to the continent after Brexit. Britain could lose as many as 75,000 jobs in banking and insurance if it leaves the EU without a trade deal, according to Sam Woods, Britain’s top banking regulator.

Woods, the chief of the BOE’s Prudential Regulation Authority, has said about 10,000 U.K.-based jobs are probably at risk on “day one” of Brexit. BLOOMBERG

 ??  ?? European Banks’ UK assets decline by $425 billion in year since vote
European Banks’ UK assets decline by $425 billion in year since vote

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