`Brexit’ Risks Leaving European Banks With $123 Billion to Cover

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.”

Bloomberg

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.