21 April, AtoZForex, Lagos – As June 23 nears, the world braces up for the possibility of a Brexit, that is a potential UK exit from the European Union. A Brexit vote would be particularly impactful on US investment banks, considering that most adopt a “passporting” system to their European business. That is running their operations from London as it enables them to offer services across the EU from their UK-regulated entities. Hence, regulators prepare for Brexit as US financial watchdogs are trying to arrange wall street banks for the worst.
Regulators prepare for Brexit
The Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), which are responsible for the banking oversight have told these banks to present clear plans to deal with the eventuality of a Brexit. The major US investment banks in London include Bank of America Merrill Lynch, JPMorgan, Citi, Goldman Sachs, and Morgan Stanley. Banks like Goldman, Morgan Stanley, Citi and JPMorgan have made clear their support for UK to remain in the EU by donating funds to the “Britain Stronger in Europe group.” This group is campaigning for the UK’s stay in the EU.
“We’ve been actively asked to do this within the last six weeks. It involves scenario planning, stress testing different outcomes. You pick a highly impactful, negative scenario that’s bad but plausible and you work through the implications for the business” according to a banking source speaking to CNBC.
BOE Brexit fear
As regulators prepare for Brexit the Bank of England also fears that a Brexit vote will lead to an exodus of banks from London, which will hit the British economy. The central bank has also been checking on bank’s preparedness for such an eventuality. And how to manage the resulting market volatility of such an event. Governor Mark Carney said:
“We are going through all our banks to make sure their contingency plans are the best that one can tell, are appropriate,” “We have stress-tested those institutions over the course of the last few years, against not this shock per se, but for elements of a related shock.”
According to current polls, support for Britain to remain in the EU leads by a small margin, standing at 49 %. Which is 10 points ahead of the Brexit supporters, according to a poll Ipsos MORI published on Wednesday in the Standard newspaper. The poll also pointed that a reduced voters turnout will help the pro-Brexit campaign, closing the gap to six points.
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