June 27, 2018 / 10:18 AM / 22 days ago

HIGHLIGHTS-Bank of England's Carney gives news conference on financial stability

LONDON, June 27 (Reuters) - Britain’s banks could deal with a hard Brexit next March if necessary, the Bank of England said on Wednesday, rejecting European Union warnings that lenders are inadequately prepared.

Following are highlights of remarks by Bank of England Governor Mark Carney and colleagues at a news conference in which they presented the central bank’s half-yearly Financial Stability Report.

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For a video of the news conference, see here

RISKS OF DISRUPTION

“The biggest remaining risks of disruption (involving Brexit) are areas where action is needed by both UK and EU authorities, such as ensuring the continuity of the 96 trillion pounds of existing derivatives contracts, in both cleared and uncleared markets.

“Based on our experience and knowlege of these markets, it will not be possible, ahead of March 2019, for private financial institutions on their own to mitigate fully the risks of disruption to financial markets.”

PROTECTIONISM

“Rising protectionist sentiment could sap some of the current strength of the global economy and reduce the size of sustainable external imbalances. While UK authorities are putting in place measures to address financial stability risks that can be dealt with unilaterally, the complete set of mitigants to the risks of a “cliff-edge” Brexit also rely on the efforts of the EU authorities.”

CAPITAL

“Major UK banks’ capital strength has tripled since 2007.”

“The Financial Policy Committee remains alert to any increase in risks faced by the UK banking system. Financing conditions in debt markets, which remain accommodative, could promote further risk-taking in the UK and elsewhere.

“The UK is more vulnerable to a reduction in foreign investor appetite for UK assets, as the share of capital inflows vulnerable to refinancing risk has risen. And material global risks could spill over to the UK.”

“The 2017 stress test encompassed a wide range of UK macroeconomic outcomes that could be associated with Brexit. As it has set out previously, the FPC judges that Brexit risks do not warrant additional capital buffers for banks.”

BANKS’ BREXIT READINESS

“With respect, the (European Banking Authority) comments earlier this week (that banks are not yet ready for Brexit) were incomplete.

“They did not acknowledge the temporary permissions regime (...) which has been very clearly signalled by the UK government.”

TRADE OPENNESS

“Maintaining the UK’s traditional openness to trade and investment is an important component of sustainable financing of the current account (...) the issue will be maintaining that through a process of leaving the EU in an environment where protectionist sentiments elsewhere are rising.

“The UK is in a strong prosition to make the case for openness ... because of what has been done in financial services to put this system in a much more resilient position. That allows the country to be confident about keeping this system open and ideally having other systems maintain their openness to ours .. which create opportunities that can offset some of these tensions.”

Reporting by Paul Sandle, Huw Jones, David Milliken and Andy Bruce; writing by Elisabeth O'Leary

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