LONDON: The Bank of England, seeking to protect the City of London’s status as a global financial hub, said it would spare European banks costly capital rules after Brexit but warned of “consequences” if negotiations with Brussels turned sour. Ahead of a tussle with Brussels, the BoE said on Wednesday keeping Britain open to foreign banks was key for economic growth at home and in the region.
BoE Governor Mark Carney said European banks operating in Britain would face little change after Brexit, as long as their supervisors in the European Union cooperated with London.
“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.
Deputy Governor Sam Woods said cooperation had worked well to date. “However Brexit is throwing up a point of tension which I think will probably build rather than subside.”
The BoE’s announcement was a first salvo in an expected struggle with the EU over banking rules that will decide the long-term fate of London’s lucrative financial centre.
Prime Minister Theresa May has said Brexit will mean leaving the EU’s single market, raising questions about how British firms will do business in the bloc and European ones in Britain. A bitter British divorce from the EU would make cross-border supervisory cooperation harder and potentially hurt banks with a big London presence.
It could also hurt public finances, as Britain collects over 70 billion pounds a year in tax from the financial services sector.
UPBEAT CARNEY: In a welcome development for firms such as Germany’s Deutsche Bank, the BoE said it would allow larger banks — for example, with assets of more than 15 billion pounds ($20 billion) in Britain — to operate as branches in the UK.
But if their home supervisors did not cooperate more closely with the BoE, the firms would be classed as subsidiaries, which would require them to park costly extra capital in Britain.
There are 77 branches of banks from the European Economic Area in Britain — 23 of which have assets of around or above 15 billion pounds - plus 80 branches of insurers.
Management consultancy Boston Consulting Group has estimated that EU banks would have to find up to 40 billion euros if all their branches in Britain were turned into subsidiaries.
Deutsche Bank has 9,000 staff in London. France’s BNP Paribas and Societe Generale have 6,500 and 4,000. The BoE’s proposal indicated a softer British position than that of the EU which on Wednesday stiffened its rules for non-EU investment banks which operate inside the bloc.
Many of those banks, such as Goldman Sachs and Morgan Stanley, have their main European operations in London, though they are making plans to move some operations to EU centres. The EU has insisted that London-based banks will lose their free access to the EU if Britain sticks to its plan for new controls on migration, which is popular with British voters but would breach a condition for membership of the single market. — Reuters
Oman Observer is now on the WhatsApp channel. Click here
