UK Financial Regulator Tells Banks to Cut Euro Breakup Exposure

September 6, 2012 Share Print 0

Britain’s top banks have tens of billions of euros in exposure to the risk of countries leaving the euro or the currency union breaking up entirely, despite intense pressure from the UK financial regulator to tackle the problem.

This “redenomination risk” is evident at Santander UK, Royal Bank of Scotland and Barclays, although much of it has been hedged, according to data published by the banks in response to the regulator’s demands

If a country left the euro zone it would introduce a new national currency which would probably plunge, hitting the value of banks’ euro-denominated assets. Capital controls could also be introduced, making it hard or impossible to take funds out of the country.

Banks outside the euro zone have stepped up efforts in recent months to mitigate their redenomination risk, notably by trying to balance their assets and liabilities in each country, raising concern this will hurt cross-border trade and flows.

via Reuters

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.