Get ready for no-deal Brexit Bank of England governor tells high-street banks

Andrew Bailey

The country’s biggest lenders have been warned by the Bank of England to bolster their planning for a no-deal Brexit as worries grow that the UK will fail to strike a trade deal with the EU.

It is understood that Andrew Bailey, the Bank’s governor, told bank bosses in a conference call on Tuesday to push on with their Brexit contingency preparations.

There is scepticism about the ability of London and Brussels to strike a free-trade deal before the UK’s transition period expires at the end of the year.

Lenders have been planning for a no-deal Brexit ever since the UK voted to leave the EU in June 2016. There are fears that a disorderly exit would send shockwaves through the UK’s financial system.

Talks to address the future relationship between Britain and the EU have so far made little progress, however, raising the prospect that a deal may not be reached.

The call, first reported by Sky News, between Mr Bailey and the bank bosses came on the same day that London and Brussels began the fourth round of their negotiations.

It is thought that executives from Lloyds, Royal Bank of Scotland Group, Barclays and HSBC were on the call.

The Bank of England said: “It is fundamental to the Bank of England’s remit that it prepares the UK financial system for all risks that it might face. In performing that role, the governor meets the leadership of UK banks on a very regular basis.

“As we have said previously, the possibility that negotiations between the UK and EU over a future trading relationship might not conclude in a deal is one of a number of outcomes that UK banks need to prepare for over the coming months.”

The UK officially left the EU at the end of January. Boris Johnson has repeatedly ruled out an extension to the transition period beyond December 31, even though the negotiations have stalled and the government is grappling with the Covid-19 pandemic.

One of the main sticking points in the trade deal talks so far has been over fishing. Michel Barnier, who is leading the negotiations for the EU, has said that the latest round of talks are a “crucial week” for the two sides to make “tangible progress across all areas”. The British team is being led by David Frost, who is the prime minister’s chief Brexit negotiator.

A no-deal Brexit would add to the pressures facing lenders, which are bracing for the economic fallout from the coronavirus crisis.

Banks have already warned that bad debts are set to rise and have started to set aside billions of pounds in provisions to cover loans that are expected to sour.

The banks are handling the state-backed loan schemes that are central to the government’s rescue package to help businesses across most industries survive the lockdown.

There are concerns among bankers that many borrowers will not be able to pay back these loans however, which would lead to a crisis engulfing swathes of small businesses.

Some City figures have suggested that a “bad bank” could be created to avoid such a crunch.