Britain’s biggest banks are trimming their exposure to currency markets as Brexit nears, according to Bank of England Governor Mark Carney.
Banks are making similar preparations to those seen ahead of the 2016 referendum, which was followed by a slump in the pound after the surprise result. “Our supervisors, in advance, had made sure they didn’t have big open foreign exchange positions,” he told the U.K. Parliament’s Treasury Select Committee. “They were neutral. And, the major banks in the U.K. today are neutral.”
Banks are well insulated against foreign-exchange market risks and could withstand extremes, according to Carney. “They are in a position where they could be shut out of the foreign exchange market for 14-plus trading days, which is unprecedented,” he said. “So that ensures that when there is a sharp move or moves, whether anticipated or not, the banks just keep functioning.”
Carney said they are readying themselves for a volatile period around the Oct. 31 deadline for Brexit to take place amid reports of trading desks canceling holidays and adding extra staff.
“From a financial stability perspective, what we care about is that the core of the system, the big banks particularly, are not making a big bet on that and that they can’t be caught out by being wrong,” Carney said.
The governor, who is due to leave in January, also gave a prediction on how the final days before Brexit might pan out in the currency markets.
“Something’s going to happen. This process is going to break one way or the other and the pound is going to move either up or down. There’s great investment advice from your governor. It’s going to move one direction or the other.”
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