This morning, BoE Governor Mark Carney discussed the risks of a hard Brexit during his testimony to the UK Parliamentary Treasury Committee. There was renewed weakness in Sterling during his testimony.
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Ironically, given the fall in Sterling, Carney explained why Europe’s financial sector is more at risk than the UK from a ‘hard’ or ‘no-deal’ Brexit. We wonder whether Juncker and Barnier appreciate the threat that a ‘no-deal’ Brexit poses for the EU’s already fragile financial system?
When asked does the European Council ‘get it’ in terms of potential shocks to financial stability, Carney diplomatically commented that ‘a learning process is underway.’ Having sounded alarm bells about clearing in his last Mansion House speech, he noted ‘These costs of fragmenting clearing, particularly clearing of interest rate swaps, would be born principally by the European real economy and they are considerable.’
Calling into question the continuity of tens of thousands of derivative contracts, he stated that it was ‘pretty clear they will no longer be valid’, that this ‘could only be solved by both sides’ and has been ‘underappreciated’ by Europe. Moving on to the possibility that there might not be a transition period, Carney had a snipe at Europe for its lack of preparation ‘We are prepared as we should be for the possibility of a hard exit without any transition…there has been much less of that done in the European Union.’
This post was published at Zero Hedge on Oct 18, 2017.
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