However, as emphasised by ECB President Draghi, it would take significant mismanagement for financial stability risks to materialise in relation to the identified cliff-edge risks of a hard Brexit, in view of the clear responsibilities of firms to make contingency plans for a hard Brexit and the capacity of legislators, regulators and central banks to address residual systemic risks.
This has included a major push by regulators to require that financial firms make preparations for worstcase scenarios rather than “hoping for the best”4. In addition, the shift in regulatory regimes after the crisis mean that banks now are much better capitalised and, as underlined by the recentlypublished EBA stress tests, have a greater capacity to absorb adverse shocks.