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The Bank of England said on Wednesday it would spare European banks costly extra capital requirements once Britain leaves the European Union, but said there would be "consequences" if Brexit talks turn sour.
Setting out its position for a possible tussle with Brussels over London's position as a global financial hub, the BoE said it wanted to ensure it could effectively oversee foreign banks and financial services firms after Brexit.
Bank of England Governor Mark Carney said big European banks operating in Britain would face little change if their supervisors in the EU cooperated with London after Brexit.
"But we retain all our options and if that is not forthcoming there will be consequences for those institutions," he told lawmakers shortly after the BoE plan was published.
By allowing EU banks to function normally, at least for now, the BoE's announcement represents the first salvo in an expected struggle with the EU over banking rules that will decide the fate of London's lucrative financial centre for decades to come.
Prime Minister Theresa May has said Britain would leave the EU's single market, raising questions about how companies in Britain will do business in the bloc...