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.
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