Andre Bailey: U.K. Banks Must Brace for Euro Break-Up

From the Telegraph:

Andrew Bailey, deputy head of the Prudential Business Unit at the Financial Services Authority (FSA), noted that British banks are not heavily exposed to the eurozone, but said they must prepare for some countries to exit the single currency – or a complete break up.

"We cannot be, and are not, complacent on this front," Mr Bailey said. "As you would expect, as supervisors we are very keen to see the banks plan for any disorderly consequence of the euro area crisis.

"Good risk management means planning for unlikely but severe scenarios and this means that we must not ignore the prospect of a disorderly departure of some countries from the eurozone.

"I offer no view on whether it will happen, but it must be within the realm of contingency planning," he added. Failure to plan for the exit of a country from the euro would be "unsound risk management", Mr Bailey said.

"The eurozone was designed without an exit mechanism and so working out how this may happen is difficult," Mr Bailey said.

Last week, Japanese bank Nomura said a euro break-up is a "very real risk" and advised bond holders to check whether they are likely to be repaid in other, reinstated European currencies if the euro crumbles. Other economists and bankers have issued warnings that financial companies need to prepare for the worst.

http://www.telegraph.co.uk/finance/financialcrisis/8914192/Andrew-Bailey-UK-banks-must-brace-themselves-for-euro-break-up.html