Brexit raises risks to US financial stability: Report

July 26, 2016 12:18 am

’s “severe adverse outcomes
in the could pose a risk to financial stability,” the Treasury
Department says in a report

The
’s vote to leave the European Union has increased the
risks to the US financial stability, the US Treasury Department says.

“Because
the UK and especially the UK financial system are highly
connected with the rest of and the , severe adverse
outcomes in the UK could pose a risk to US financial stability,”
according to a Treasury report released on Monday.
The
report by Treasury’s Office of Financial Research (OFR) was released a
day after world finance officials pledged to protect the global economy
in the aftermath of Brexit vote last month.
On
June 23, some 52 percent (17.4 million) of British voters opted to
leave the EU, while roughly 48 percent (16.14 million) of people voted
to stay in the union.
The OFR said risks to the American
economy remained in the “medium” range but had been aggravated by
the shock waves of the historic referendum.
“Brexit
was a shock,” OFR director Richard Berner said. “It creates uncertainty
both in financial markets and among business people. … There’s still
uncertainty to come.”
US financial markets, especially the country’s stock market, were badly affected after the June 23 referendum.
Although
the markets later recovered and the stocks mounted a robust rally in
past few weeks, the OFR report warns that markets may be underestimating
the dangers ahead.
In a “severe
adverse scenario,” the vote repercussions would threaten the US
financial stability system through creating disruptions in
trade, financial connections among the countries as well as investor
confidence, read the report.
One day after people voted for Brexit, the US stock market experienced its worst drop in the previous 10 months.
The
Dow Jones Industrial Average plunged by 3.4 percent, the Standard &
Poor’s 500 fell by 3.6 percent and the Nasdaq plummeted by 4.12%.
US crude also had a decline of  five percent, or $2.47, reaching $47.64, its biggest one-day drop since February.
According to the Wilshire 5,000 index, Brexit caused around $800 billion in US market value to be erased.
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