U.S. banks are prepared for 'hard Brexit': Mnuchin

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WASHINGTON — Treasury Secretary Steven Mnuchin told lawmakers Tuesday that U.S. financial institutions are prepared for a “hard Brexit,” less than a week before the deadline for the United Kingdom to craft a deal governing its departure from the European Union.

“I have been working very closely with [the U.S. Financial Stability Oversight Council] and the appropriate regulators to make sure that our financial institutions are prepared for a hard Brexit,” Mnuchin told the House Financial Services Committee. “We need to be prepared for a hard Brexit as a very realistic outcome.”

Mnuchin told the committee that he has coordinated with the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. to ensure the U.S. financial system is prepared should the U.K. leave the EU without a deal. A hard Brexit could affect swaps deals involving U.S. firms and overseas counterparties.

The deadline to strike a deal on Brexit before Britain leaves the EU is Friday, although U.K. Prime Minister Theresa May is hoping for a delay.

“I think U.S. financial institutions are prepared, but I think there could be significant disruptions in the markets and in trade as a result of a hard Brexit,” Mnuchin said in response to Rep. Patrick McHenry, R-N.C., the House committee’s ranking member.

Mnuchin’s annual testimony on the state of the international financial system came a day before the CEOs of seven of the eight largest U.S. banks are set to appear before the committee.

He told the committee that the U.S. financial system is healthy and that banks are well capitalized. He also lauded Congress for passing a bill last year to ease some of the Dodd-Frank Act’s regulatory burdens on community banks last year.

“I think it is important that we have a robust regional bank, community bank system,” he said.

Mnuchin also stressed the need for Congress to pass legislation requiring companies to identify their "beneficial owners." The bill is aimed at curbing money laundering by preventing the true owners of business bank accounts from hiding behind shell companies.

In discussions about reforms to anti-money-laundering regulations, the House failed to strike a deal last year after Republicans removed a beneficial ownership provision. That provision is largely supported by the banking industry.

Rep. Carolyn Maloney, D-N.Y., said members of the committee are working on a bipartisan basis to come to an agreement on beneficial ownership.

“We have been working on a bipartisan basis on this issue and I think we are very close to an agreement,” Maloney said.

Mnuchin, who said he has seen draft legislation on beneficial ownership, told Maloney that he thinks Congress is “generally” headed in the right direction.

“I hope not to be back again next time without this solved,” Mnuchin said.

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