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     LONDON (MNI) - The Bank of England's Financial Policy Committee 
(FPC) said that UK banks would be able to continue to support the real 
economy through a disorderly Brexit, but it warned that an abrupt shift 
to World Trade Organisation (WTO) rules could disrupt the financial 
services sector, hit productivity and disturb migration flows. 
     The minutes of the FPC's November 22 and 27 meeting fleshed out the 
FPC's thinking on the threats posed by the UK leaving the European Union 
and shifting to WTO rules if no deal were to be agreed with the EU. 
     In addition to resulting in tarrifs on UK goods and services a move 
to WTO rules could result in a raft of regulatory authorisations to sell 
goods and services. 
     "Abrupt falls in trade could drag on productivity, as currently 
integrated supply chains were re-orientated, weighing on corporate 
profits and real incomes," the FPC said. 
     It warned that disruption to financial services could affect the 
functioning of financial markets, including for derivatives, for both 
the UK and EU. 
     The FPC also noted the likelihood of disruptions to cross-border 
trade and a fall in migration flows into the UK following a hard Brexit. 
     The BOE carried out stress tests on commercial banks which looked 
at whether they had sufficient capital to withstand a deep recession, 
with a 4.7% fall in GDP, a rise in Bank Rate to 4% and a steep rise in 
unemployment. 
     The FPC said that "even particularly adverse combinations of the 
risks that could be associated with Brexit would be encompassed by this 
scenario." 
     They agreed that as the stress tests showed UK banks capital was 
adequate they would be able to continue to support the economy through a 
disorderly Brexit. The problem could come if a disorderly Brexit came at 
the same time as the world economy was hit by recession. 
     "The combination of a disorderly Brexit and a severe global 
recession ... could result in more severe conditions than in the stress 
test," the FPC said. 
     In these circumstances banks would be more likely to restrict 
lending to the real economy. 
     The FPC looked at the case for increasing banks' countercyclical 
capital buffer (CCyB) above the announced rise to 1%, but noted that 
this would have been a surprise for markets and that the chance of a 
global recession and disorderly Brexit occuring together was remote.  
-London newsroom: Tel +44 203 856 2226; email: 
david.robinson@marketnews.com 
                                                                        
[TOPICS: M$$BE$,MT$$$$]