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European lenders trimmed their exposure to the U.K. in the wake of its vote to leave the European Union, reducing their U.K. assets by $425 billion in a year.
The drop was propelled by a 35 percent decline in derivatives exposures, which revealed that European lenders are bracing for the risk that the Britain fails to reach an agreement on its future relationship with the bloc ahead of its departure.
According to European Banking Authority data, banks in the 27 other EU countries had 1.59 trillion euros ($1.9 trillion) in overall assets tied to the U.K. at the end of June, nearly 356 billion euros lower than that of the previous year.
The EBA advised companies to prepare for a potential cliff-edge, in which EU rules cease to apply in the U.K. and a new agreement isn't in place when the U.K. departs in early 2019.
The Bank of England said a “comprehensive solution" is needed as part of the Brexit process to protect the “long-term validity" of 20 trillion pounds ($26.7 trillion) of existing derivative contracts.
European Central Bank President Mario Draghi also cautioned that contract continuity could be compromised.
Several banks with offices in the U.K. have announced plans to change positions to the continent after Brexit. According to Sam Woods, Britain's top banking regulator, the U.K. might lose as much as 75,000 jobs in banking and insurance once it leaves the EU without a trade deal.
