MNI POLICY: BOE FPC Urges EU Action On Brexit Financial Risks>

-BOE FPC: UK Banks Can Withstand Shock Of Cliff-Edge Brexit 

     By David Robinson and Jai Lakhani 

     LONDON (MNI) - The Bank of England Financial Policy Committee (FPC) 

has warned that time is running out for the European Union to act to 

prevent the disruption of financial services in the event of a 

cliff-edge Brexit. 

     -The FPC said it was too late in the day for companies acting on 

their own to avoid disruption of cross-border financial services. The UK 

government has created a temporary permissions regime, allowing EU 

finance firms to carry on as normal here, but there has been no 

reciprocal action.

     With the March 2019 date for Brexit looming, the FPC is still 

reduced to publicly urging the EU to act - highlighting the 

battle it has faced in making progress in private.

     -Clearing houses which do not have permission from the EU to 

service existing derivative contracts run the risk of acting illegally 

if they continued to do so post a cliff-edge Brexit. Of the stg69 

trillion  cleared derivative contracts, stg40 trn have maturity dates 

after the Brexit deadline. 

     -The story is mirrored in the insurance market. The temporary 

permissions regime allows UK agents using EU insurers to have their 

claims serviced in the UK. However, the EU has offered no such 

reciprocal arrangement, leaving insurers to manage their own risk. 

     -Absent Brexit, the FPC said that financial stability risks were 

standard. The FPC however highlighted a couple of areas of concern: 

increased lending to highly indebted businesses and growth in high 

loan-to-value (LTV) mortgages. 

     -The FPC noted strong risk appetite globally as part of a 

search for yield. This has been mirrored by UK banks lending to highly 

indebted businesses (Debt/EBITDA of greater than 4). 

     The new stock of 2018 corporate lending is anticipated to 

reach stg31 bn, of which around a third will come from the UK 

banking sector. Consequently, corporate credit is anticipated to reach a 

record high in 2018.    

-London newsroom: Tel+44 203 856 2226; email: 

jai.lakhani@marketnews.com; david.robinson@marketnews.com 

[TOPICS: M$$BE$,MT$$$$]