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Under pressure: Europe’s banks face growing fear of systemic risk after Brexit vote 

July 8, 2016

John Shmuel, Financial Post

The British pound crashed to a 31-year low and the capital flight into bonds continued Wednesday as fears grow that the Brexit has triggered systemic risk in Europe’s banks.

From property funds in the United Kingdom to Italy’s major lenders, there are growing signs that liquidity is tightening up and that new measures are needed to prevent a crisis. In London, six British commercial property funds — with holdings of more than 15 billion pounds — have now told investors that they cannot have access to their money until further notice. The halt follows a rash of redemptions by investors following the June 23 referendum.

Systemic risk has also flared up in Italy’s banks, which had already been rotting under the weight of bad debt for years. Major bank shares in the country have crashed nearly 50 per cent since the referendum and there were new calls Wednesday that rules limiting state aid to lenders need to be eased to prevent a crisis.

“The whole banking market is under pressure,” said Lorenzo Bini Smaghi, chairman of French banking giant Societe Generale, in an interview with Bloomberg Television. “We adopted rules on public money; these rules must be assessed in a market that has a potential crisis to decide whether some suspension needs to be applied.” Read more

 
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