UK is 'Europe's investment banker' but Brexit clairity needed, says Carney

The Governor of the Bank of England said Britain is “Europe’s investment banker” but warned that greater clarity over Brexit is needed for businesses.

As the BoE released interim stress tests of British banks, Mark Carney said at a conference: "It is important to recognise that the United Kingdom is effectively the investment banker for Europe.

“More than half the equity and debt raised is raised in the United Kingdom by firms based in the United Kingdom, quite often to investors based in the United Kingdom.

"It's absolutely in the interest of the European Union that there is an orderly transition and that there is continual access to those services."

He warned that Europe could be affected if it does not have access to the City of London, once Britain leaves the European Union.

"Additional risks to the euro area could emerge as a consequence of the UK's withdrawal from the European Union. Banks located in the UK supply over half of debt and equity issuance by continental firms, and account for over three quarters of foreign exchange and derivatives activity in the EU.

"If these UK-based firms have to adjust their activities in a short time frame, there could be a greater risk of disruption to services provided to the European real economy, some of which could spill back to the UK economy through trade and financial linkages."

On Monday Mario Draghi, the President of the European Central Bank, said Britain would be affected more than EU from Brexit as it would have weaker trade and investment and restricted migration.

Carney said that it is “preferable” that British companies know as early and as much as possible about what type of relationship the country will have with the EU, as it would “help promote a smooth and orderly transition”.

But he stressed that it was still early as “Article 50 has not yet been triggered. The timing of those plans and the point at which firms would need to put them into action is still some way off”.

On Sunday, it was revealed that Carney was preparing plans to protect the country’s financial institutions from a ‘hard’ Brexit – no longer being member of the single market or customs union, adopting World Trade Organisation rules and curbing immigration - when he met with senior figures from the City.

Trump, Italy and China

The governor also said that there was a possibility that a slowdown in growth in world trade accelerates due to potential policies from the US.

“While that might not directly affect the United Kingdom if it slows the pace of global growth - and we're an open trading nation one of the most open nations in the world - it's going to have a knock-on effect through this economy. This is more of a slow burn issue, sand in the gears, headwind for the global economy as oppose to a sharper shock if any of it were to actually materialise."

He said that exposure to Italy’s currently failing banks was “extremely low” and “very manageable”.

While he said that the significant risks to financial stability in Britain were global as growth in China was increasingly reliant on rapid credit expansion.

“Since the global financial crisis, Chinese non-financial sector debt has risen by around 100 percentage points relative to GDP, and currently stands at 260% of GDP. This is extraordinary leverage for an advanced, let alone, an emerging economy.

“There are signs that capital outflows from China and other emerging economies have begun to pick up in recent months and may accelerate further depending on the degree and pace of increases in US market interest rates."