(Refiles to add a dropped word in second paragraph)
LONDON, March 27 British banks need to prepare
for a wide range of potential outcomes and avoid sudden changes
to lending as the country gets ready to leave the European
Union, Bank of England policymakers said on Monday.
Just two days before Prime Minister Theresa May plans to
formally notify the European Union that Britain is ready to
start two years of exit talks, the central bank said banks will
have to provide copies of contingency plans to reassure
regulators that they are ready for "a range of possible
The Bank of England's Financial Policy Committee is asking
Britain's banks to show how they can avoid their continental
customers being abruptly cut off after Brexit.
Lenders worry that Britain will not secure continued,
unfettered access to the bloc's single market, and some are
already planning to beef up their presence on the continent.
"Sudden adjustment could disrupt the provision of market
liquidity and investment banking services," the FPC said in a
quarterly policy statement.
Changes to bank business models after Brexit would reduce
the resilience of the UK financial system and the BoE said it
was "examining appropriate mitigants", without elaborating
Bank of England Governor Mark Carney said earlier this year
that he did not believe leaving the European Union was the
biggest threat to British financial stability, a view that has
The BoE said it was launching a review into consumer lending
standards, which it now believes poses a greater risk than
buy-to-let lending to small landlords, which has cooled over the
The FPC also set out the scenario for this year's annual
stress test of top lenders.
For the first time, they face a biennial parallel
'exploratory' test of their ability to cope with emerging or
latent risks outside the usual financial cycle. The cyclical
test covers a five-year period of shocks, while the exploratory
version will span seven years.
A second test is made possible by the absence this year of a
European Union stress test of leading banks.
RBS failed last year's test and had to take steps to bolster
its capital buffers, and will be under intense pressure to pass
this time round. Barclays and Standard Chartered also missed
some thresholds in last year’s exercise..
In January, Carney said that Britain's large financial
sector could survive some businesses moving away, but losing key
activities could cause it to collapse like a precarious wooden
tower in the game Jenga.
Since then banks have told Reuters they are concerned at the
relative lack of interest shown by May's government towards
ensuring they can continue to easily sell services into the EU
after Britain leaves.
HSBC, UBS and Morgan Stanley have
decided to move about 1,000 staff each from London in the next
two years, according to sources familiar with their plans.
Last week Goldman Sachs said it would begin moving
hundreds of people out of London as part of contingency plans
for Britain leaving the EU.
Earlier this month, the central bank said the outlook for
global economic growth had improved, partly due to market
expectations of tax cuts and looser regulation in the United
States, as well as more spending in the euro zone.
(Reporting by Huw Jones and David Milliken;
firstname.lastname@example.org; +44 20 7542 5109)