The first half of 2016 has been a roller-coaster for financial markets. A combination of uncertainties surrounding the U.K.’s vote to leave the European Union and weaker-than-expected corporate earnings results across the region means a tough second half looms.
European banks, in particular, have had a very tough six months as the shock and volatility around Brexit sent banking stocks south. Major European banks like Deutsche Bank and Credit Suisse saw their shares in free-fall after the referendum’s results were announced. In the U.K., RBS was the worst-hit, with its shares plunging by more than 30 percent since June 24.
The current uncertainty over when the U.K. will start the process of quitting the EU has banks on tenterhooks. But a source told CNBC that banks are “preparing for an economic nuclear winter situation.”
The Bank of England is consumed with preparing contingency plans for Britain to leave the EU, with staff across its financial stability, monetary policy and regulatory wings ready to calm any turmoil.
In the days leading up to the June 23 poll, the Bank will hold additional auctions of sterling to ensure the banking system has sufficient funds to operate in a potentially chaotic moment.
Three exceptional auctions of cash have already been planned for June 14, 21 and 28. But stuffing the banks full of cash will not prevent foreigners and UK households and companies dumping sterling in the event of a Brexit vote. Continue reading →