Clearly, the practical implications of a Brexit depend to a large extent on what will be agreed upon in Brexit negotiations. And this is also true with respect to banks on both sides of the Channel. Many institutions have shaped their business models in accordance with the cooperative financial framework in the EU.
Issues have also been raised on the assessment of LossGiven-Defaults (LGD’s) in the downturn phase of the economic cycle, the efficiency of supervisory validation and the quality of stress testing. These problems will have to be sorted out to avoid unwarranted fears and suspicions.