LONDON (Reuters) - A disorderly Brexit remains the biggest risk to Britain's financial system but it still looks unlikely and British banks are well prepared, Bank of England Deputy Governor Jon Cunliffe said on Wednesday.
Britain's central bank has long warned banks to prepare for Britain leaving the European Union on March 29 without any form of transition deal, to minimise the risk of disruption to markets and households.
"Such an outcome may not be what we expect to happen or what is likely to happen but rather the worst possible case," Cunliffe told students at the London School of Economics.
"But, if it occurred, it would almost certainly lead to a correction in UK asset prices and losses for UK banks," he added.
Cunliffe said high debt levels in Britain's economy looked more manageable than in the past, due largely to low interest rates.
But regulators might need to look more closely at mortgage lending if it rebounded following more clarity on Britain's future outside the European Union, he added.
BoE Governor Mark Carney told lawmakers on Tuesday that financial markets had not priced in enough monetary tightening if Brexit goes smoothly, as the central bank's most recent forecasts showed inflation above the BoE's target over its three-year forecast period.
(Reporting by David Milliken, editing by Andy Bruce)
