Although he said the Bank expected a transitional deal to be agreed before the article 50 process completed in March 2019, Carney insisted Threadneedle Street was making plans for a hard exit as a precaution.
Some European banks operating in London had failed to make sufficient plans due to an expectation that a deal would be struck and they would be allowed to remain operating branches in the UK from headquarters in the EU, he added.
“I think they now understand the latter is not necessarily going to be the case. We’ll have more to say about that in due course,” he said, speaking at the Treasury select committee on Tuesday.
Carney said it was important not to ask banks to make too many changes in a short space of time, for fears over the difficulty of shifting complex financial products such as derivatives, which are used for a variety of reasons including protecting businesses from interest rate changes. [...]
Under questioning from the Commons Treasury select committee, Carney said it would take 18-24 months for banks to take the initial steps required to retain access to trading in the EU.
“There’s a very little amount of time between now and the end of March 2019 to transition large complex financial institutions and activities,” he added.
He said anything more ambitious than that, such as Brussels making demands for certain banking activities to take place solely within the EU after Brexit, would be “very, very risky to do” without a transitional deal.
“It is absolutely in the interests of the EU27 to have a transition agreement,” he said. [...]
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