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Treasury joins regulators in call for banks to plan for no-deal Brexit

Britain's high street banks have been asked by the Treasury to assess their exposure to businesses likely to be affected by a no-deal Brexit and draw up plans to support them through any disruption.

The Treasury has no formal role in regulating banks, which is usually the preserve of the Bank of England's Prudential Regulation Authority and the Financial Conduct Authority.

But an executive at a London-listed bank told The Daily Telegraph that the Treasury, which declined to comment, joined Bank of England regulators in urging lenders to draw up plans to support businesses in the event of Britain quitting the European Union without a withdrawal agreement.

A bank executive, who wished to remain unnamed, told S&P Global Market Intelligence that his firm is "considering all the risks associated with Brexit and this is part of our continuing dialogue with the U.K. government."

The businesses most likely to be affected by a no-deal Brexit are those that involve significant levels of cross-border shipments or payments. Firms involved in high levels of foreign currency payments are also likely to be regarded as high risk for banks.

"Both the U.K. and our EU partners should focus on agreeing a managed exit and a clear framework for cross-border trade including in financial services," said a spokesman for UK Finance, the banking trade association.

"However, it is right that contingency plans are made to minimize disruption for consumers and businesses on both sides of the Channel in the event of a "no deal." The U.K. government is taking a pragmatic approach to addressing critical cliff-edge issues and to ensure consumers and businesses can continue accessing vital cross-border services."

The chances of Britain quitting the EU without a withdrawal agreement appeared to rise this week after the two sides failed to reach agreement over key issues on future border arrangements between Northern Ireland, part of the U.K., and Ireland, part of the EU.

A deal outlining agreement between the two sides had been expected to be announced on Oct. 17 in Brussels, but that now seems less likely.

The government has already opened talks with drugs companies over the possibility of stockpiling medicine or flying in emergency supplies in the event of a no-deal Brexit, calling on drugs firms to build up an additional six weeks of medical supplies.

Supermarkets, meanwhile, criticized the proposal earlier this year from Brexit Secretary Dominic Raab that they stockpile food in the event of a no-deal Brexit. Tesco chief executive Dave Lewis warned that opportunities to do so were "very, very limited" partly because the sector's "just in time" logistics systems meant very little food was stored.

The Bank of England's bank stress tests a year ago, though not modeled on a worst-case Brexit scenario, were designed to replicate the economic impact which a no-deal Brexit would cause. The central bank said its tests showed U.K. banks could absorb £50 billion of U.K. losses and a $40 billion hit on overseas assets in the next few years.

Mark Carney, the BoE's governor, said at the time the central bank was "putting our money where our mouth is" by presenting U.K. banks as able to withstand the worst possible scenario.

"What we have to do is to look at the tail risk — what could go wrong — and to ensure that the core of this system has enough capital and liquidity to withstand a shock to the financial system," he said. "U.K. banks could continue to support the real economy even in the event of a severely disruptive exit from the EU."

The European Banking Authority will announce the results of its latest stress tests next month. These cover the effect of a major macroeconomic downturn including the effect of Brexit.