- Carney Urges Banks to Prepare for All Potential Brexit Outcomes
Bank of England Governor Mark Carney urged banks to get contingency plans in place for all potential Brexit outcomes, in comments a week after the government triggered its formal exit from the European Union.
In a speech in London, Carney said the transition poses a risk to financial stability and warned that if it leads to reduced cooperation on regulation and other issues, this will have a negative impact on the economy and jobs.
Describing better international coordination on regulation as taking the “high road,” he said this would lead to “more jobs, higher sustainable growth and better risk management across the G20.”
“But there is another path — the low road — where trust and cooperation diminish, fragmentation hardens, capital flows are disrupted and trade and innovation are curtailed,” he said.
Carney’s comments are his first since Article 50 was triggered and spell out his view of the threats to London as a global financial district because of Brexit. He highlighted the significance of the banking industry in London and the wider U.K. and also repeated his view of its importance to the EU, describing it as “Europe’s investment banker.”
“Taking the low road would be sub-optimal for all, with fewer jobs, lower growth and higher domestic risks,” he said in the speech on Friday.
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Carney, who was heavily criticized by some lawmakers for Brexit remarks in 2016 seen as overly political, said that a positive U.K.-EU approach to regulation is in the U.K.’s interest. It would be “entirely consistent” with the government’s aim for a “comprehensive, bold and ambitious free-trade relationship with the EU,” he said.
The BOE also published a letter sent to the financial industry on preparation. Deputy Governor Sam Woods said all firms with cross-border activities between the U.K. and the rest of the EU must “undertake appropriate contingency planning” for Brexit.
Woods said the level of preparedness is “uneven” and may not be sufficiently tested against the worst outcomes, such as a so-called hard Brexit or no new deal being agreed at the end of the two-year exit timetable. The regulator wants banks’ “full responses” by July 14.
Given the wide range of possible outcomes, firms must have plans in place early so that they can “stand ready to execute in good time should the need arise,” Woods said in the letter.