By Emma Rumney and Sinead Cruise
LONDON (Reuters) – The Bank of England (BoE) has asked lenders in Britain to provide six-hourly checks on their balance sheets in the days after a possible “no-deal” Brexit as it seeks to avert a sudden squeeze in credit supply, a senior industry source said.
The source told Reuters the central bank’s supervisory arm, the Prudential Regulation Authority (PRA), was “upping the ante” on its Brexit planning as time runs out for London and Brussels to agree the terms of their divorce.
“The working assumption was that there will be something [in terms of a deal], and now… they might simply time out,” the source said, describing the lengthy negotiations between UK and EU lawmakers.
The PRA declined to comment.
Brexit negotiations have so far failed to produce a deal with just six months to go before the March 29 deadline. A no-deal Brexit would erase legal infrastructure relied upon by much of the financial sector, and could derail a shaky UK economy.
The BoE on Tuesday urged the European Union to do more to protect cross-border financial services from the risks of a “cliff-edge Brexit” in its most stark warning on market stability to date.
But the central bank also said it had no concerns about the overall resilience of Britain’s banks, pointing to healthy volumes of capital stockpiled to help lenders cope with disorderly markets.
The BoE’s checks on lenders if there is no deal would cover deposits, loans, currency and derivative exposures as well as any changes in the cost of funding and lending rates, the source told Reuters.
These would also include telephone calls at regular intervals where senior management can relay in real time the money market impact of Britain’s departure from the single market, and the end of decades’ worth of shared regulation and mutual commercial interest.
The PRA routinely increases monitoring of lenders around significant events, and took similar measures when Scotland voted on its membership of the United Kingdom in 2014 and the Brexit referendum in 2016.
The source said some banks responsible for supplying the bulk of credit to consumers and businesses in Britain were preparing for a worst-case scenario, even though there have been reports that Brexit talks have made progress ahead of an EU summit next week.
The PRA was also asking multiple questions about lenders’ preparedness for a no deal and what would happen the day after, the source said.
The source also said at least one major British lender was preparing playbooks for client-facing staff in the event of a chaotic exit, which could create cashflow problems for business customers or supply chain failures if EU imports pile up at the border.
This lender has also outlined plans to man desks overnight to monitor the impact on the pound and interest rates and protect itself against any large swings in either.
Its board will also be briefed early on “no-deal day” although there is no consensus on when that day would fall, the source added, with market disruption likely on the first day no deal is declared and actual Brexit Day on March 29.
The PRA has not yet formally asked lenders to share details of their no-deal preparations, but the source said this was expected in due course, as well as a call from the regulator for banks to maintain healthy lending volumes.
“The last thing we want is the British banks skewering the economy,” the source said.
(Editing by Silvia Aloisi, Alexander Smith and Jane Merriman)