BoE calls on Brussels to do its bit to reduce Brexit risks

The Bank of England has called on the EU to match the UK's actions to deal with continuing risks of disruption to financial services from Brexit.

In its financial stability report the BoE said progress had been made on Brexit preparations but that there were risks to derivative contracts.

The BoE’s financial policy committee, chaired by Governor Mark Carney, called on the EU to show willingness to solve the problem. Carney said he spends almost half his time thinking about Brexit, despite having no role in negotiations, because of the potential consequences for the economy and financial system.

The UK has said it is prepared to enact temporary measures to let EU-based financial companies keep providing services to UK users after Brexit, reducing the risk of disruption for British customers. The BoE said the EU had not yet come up with an equivalent proposal.

Carney said: "The UK government has responded. There are cross-cutting issues and derivatives is the most obvious example, and it requires a decision on the European sides as well. As at the end of June 2018 the European side has not yet said how it will address these issues. We are duty bound [to point out] where there is still work to be done."

The BoE said it was confident UK banks could support the economy through a disorderly departure from the EU. “As it has set out previously, the FPC judges that Brexit risks do not warrant additional capital buffers for banks,” the BoE said.

Asked how much of its time the BoE spends on Brexit, Carney said: "The answer … is a lot and rightly so. I probably spend 40% of my time … It's close to half is the short answer."

Leaving aside Brexit risks, the BoE said risks to the financial system were as expected. Household and corporate debt are lower than in 2008 relative to incomes and credit growth is broadly in line with GDP growth.

Consumer credit is expanding rapidly but the FPC has taken action to make sure banks can absorb big losses on consumer loans. It has also tightened mortgage lending standards and is making no adjustment to its countercyclical capital buffer of 1%.

The BoE said global risks were material and had increased. These include the euro area’s vulnerability to high public debt levels and links between banks and governments and increasing risks in emerging markets. Rising trade tensions, and high Chinese and US corporate debt are also risks, it said.

The committee is also requiring banks to show they are prepared for cyber attacks and can recover from an assault on their computer systems.