Brexit raises risks to US financial stability: Report
The United Kingdom’s vote to leave the European Union has increased the risks to the US financial stability, the US Treasury Department says.
"Because the UK economy and especially the UK financial system are highly connected with the rest of Europe and the United States, 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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