A “disorderly” EU exit by the UK could have a negative knock-on effect on the US economy, US Federal Reserve Chairman Jerome Powell said on Tuesday.
The US banking system’s exposure to British banks is small, but US financial institutions’ exposure to the European banking system is “more significant,” Powell said.
“A slowdown in the EU economy following Brexit could indirectly affect the banks,” he said.
Photo: Bloomberg
Powell’s remarks came on the same day that European Chief Negotiator for the UK Exiting the EU Michel Barnier called for more time to reach a deal, as fears grow that Britain could crash out of the union with no agreement — a prospect referred to as a “hard Brexit.”
Addressing a Washington meeting of the US Financial Stability Oversight Council (FSOC), an advisory board of financial regulators created after the 2008 crisis, Powell said that Britain’s planned pullout from the EU was a “highly complicated process.”
“Uncertainties” about what it will mean for financial regulation made it all the more important to reach “efficient solutions to avoid a financial stability crisis,” he added.
US Department of the Treasury Undersecretary for International Affairs David Malpass raised similar concerns about Brexit’s effects on financial markets at the FSOC.
“We want to ensure that potential spillover, particularly in the event of a ‘hard’ Brexit, is mitigated so that financial stability is maintained,” Malpass said.
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