Brexit ‘Extraordinarily Dangerous’ for U.S. Banks
By Rob Blackwell
WASHINGTON — It wasn’t supposed to go this way. Although fears of a possible vote by the United Kingdom to leave the European Union had been growing, most U.S. analysts and bankers believed the chances of the “Brexit” push succeeding were unlikely. But after Britain shocked the world by voting Thursday in favor of secession, global markets quickly plunged into turmoil. The value of the British pound plummeted and bank stocks got hammered. “This is an extraordinarily dangerous situation,” said Karen Shaw Petrou, managing director of Federal Financial Analytics. The only bright spot for U.S. banks is that they appear better prepared for shocks, based on the results from the Dodd-Frank Act stress tests completed on Thursday. The test — which anticipated a severe economic downturn — was harder than last year’s, yet big banks scored better. “If any institutions are prepared for it, it’s the U.S. [big banks] — see yesterday’s results and be comforted,” Petrou said. “That said, stresses are now only partially reflected in DFAST. That’s credit-risk-focused and what’s up now is liquidity and to lesser extent operational.” Petrou said her biggest concern is contagion risk to global systemically important banks from asset managers pulling stand-by lines and from exchange-traded funds. “Time to see who’s right about how resilient asset management is and hope we don’t learn the hard way,” she said.
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