Global markets have had a volatile response to the UK’s decision to leave the EU—but the US’s Brexit concerns will likely stem from its banking system rather than a decline in economic growth, Goldman Sachs warns.
“Financial contagion is a greater source of risk given the higher interconnectivity between the US and UK financial systems,” Goldman economist Elad Pashtan says.
US banks held $424B in loans on UK borrowers in Q4 ’15, including $46B in loans to UK banks—totaling $495B of potential US bank exposure to the UK.
UK banks also have significant exposure to America, holding a $1.4 trillion in financial claims on US borrowers, MarketWatch reports.
US and European stocks plummeted the two days following Britain’s referendum, and the pound crashed to a 31-year low compared to the dollar. But for now markets have stabilized, and the pound has strengthened. [MW]
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