Mark Carney: Brexit is no longer single biggest risk to financial stability

Britain's exit from the European Union is no longer the single biggest risk to financial stability, according to the governor of the Bank of England.

Mark Carney was giving evidence to MPs
Mark Carney was giving evidence to MPs

Mark Carney told MPs on the Treasury Select Committee that the Brexit transition period poses a greater threat to financial stability in Europe than in the UK.

Asked whether Britain's vote to leave the EU remained the main threat in light of the surprising resilience of the UK economy since the Brexit vote, Mr Carney said: "Strictly speaking, the view of the committee is no."

However, the Canadian said Britain faces global risks and the process of adaptation to life outside the EU has the potential to "amplify" other threats.

"In the run-up to the referendum we said it was the largest risk because there were a series of positions and possibilities in the financial sector, things that could have happened, that could have had financial stability consequences," he said.

"So because we viewed it as the biggest domestic risk that was why the £250 billion of capital was prepositioned with us.

"We would like to say this had some success.

"But having got through the night and the day after, the scale of the amount of the risks around Brexit has gone down for the UK, but the process can amplify."

Asked whether Britain needs to thrash out a transitional deal for the financial services sector as soon as Article 50 is triggered, Mr Carney said it would be in the interest of both the UK and the EU.

"It is the best mitigant to those (financial stability) risks, yes. It's welcome," he added.

It comes after Xavier Rolet, chief executive of the London Stock Exchange Group, told the Treasury Select Committee on Tuesday the financial services industry should be handed a five-year transition period after Article 50 is triggered.

His call for a Brexit bridge was echoed by Douglas Flint, group chairman of HSBC, who said a two-to-three year transition was needed to help financial firms adapt.

Mr Carney said Mr Flint had used a "decent analogy" when he told MPs that London's financial ecosystem was like a Jenga tower, where if you pull one small piece out nothing could happen or it could have a dramatic impact.

The Bank governor said: "Just like when you play Jenga, you start early and there are some pieces which you can take out without imperilling the tower."

He added that it was "very clear" that cross-border retail banking was an example of an operation that could be relatively straightforward as opposed to other functions.

Treasury committee member Jacob Rees-Mogg, who has clashed with Mr Carney in the past over the Bank's outlook on Brexit, launched a further assault.

He claimed the surprisingly strong performance of the UK economy following the EU referendum result showed the Bank's gloomy forecasts were wrong.

The comments came after Andy Haldane, the Bank's chief economist, admitted last week that economists had become embroiled in a forecasting crisis, labelling warnings of a swift and deep downturn after the Brexit vote as a ''Michael Fish moment''.

Mr Carney said the Bank's risk analysis around Brexit was right and the mitigating steps that it took helped reduce the severity of the risk.

Responding to criticisms, the governor said: "Missing the financial crisis is a big deal, a couple of good quarters is nice to have. It is a different order of magnitude."

Turning its attention to the United States, the Treasury committee asked whether President-elect Donald Trump posed a risk to financial stability.

Professor Anil Kashyap said the victory for Mr Trump did not change the level of risk in the short term, but in the medium term it was possible.

Asked if the Bank of England had people in place to monitor Mr Trump's Twitter account through the night in case his comments move markets, Mr Carney said: "Yes is the short answer. Not him per se, but we monitor social media."