BOE FPC Highlights Risks Associated With Disorderly Brexit>

     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$$BE$,MT$$$$]