If Britain decides to leave the European Union, a corner of the credit market may depart with it and European banks could be left having to replace as much as 108 billion euros ($123 billion) of securities.
Lenders from the EU that bought bonds backed by U.K. mortgages, bank loans and credit-card debt may find themselves caught up in the fallout of a “Brexit” because the debt might no longer count toward their emergency cash reserves. While a settlement with the bloc would take years to reach, lawyers and analysts are beginning to flag concerns about holdings of the asset-backed securities, a market that’s already been hammered since the financial crisis.
“Banks could find themselves having a liquidity issue if these assets no longer count,” said Vincent Keaveny, a partner at law firm DLA Piper, who specializes in structured credit. “There are big risks out there, but there aren’t any easy fixes.”