The U.K. is clashing with European Union authorities over its right to police the liquidity of London branches of foreign lenders in the wake of the collapse of Iceland’s banking system.
The European Commission is proposing to shift powers for regulating bank branches’ liquidity away from authorities where they are located to the lender’s home nation. The U.K. is concerned that this could leave its regulators unable to protect British depositors in a crisis.
Britain is calling for “appropriate safeguards for host supervisors to ensure financial stability in their jurisdiction,” the U.K. Treasury said in an e-mailed statement. The U.K. is “working closely” with the commission and other governments “to achieve this goal.”
Regulators are seeking ways to prevent a repeat of events in 2008 when depositors in the U.K and the Netherlands lost money with branches of failed lender Landsbanki Islands hf. The Netherlands, U.K., and Iceland have struggled to agree on repayment terms for the $5.2 billion needed to cover the depositor losses.
The U.K has support from central and eastern Europe for allowing host country regulators to retain emergency powers over foreign branches’ liquidity, restricting their ability to shift money and take deposits.
The commission says responsibility for policing liquidity is best concentrated with a bank’s main supervisor.
Michel Barnier, the EU’s financial services commissioner, favors measures to “align” supervision of liquidity with that of capital, said Chantal Hughes, his spokeswoman at the Brussels-based commission. Host supervisors would be left with “appropriate control.”
Lenders “generally support” the commission approach, the European Banking Federation said in an e-mailed statement. Reporting “to the home supervisor rather than to all countries where it has a presence,” would reduce the burden on lenders, it said.
“Whenever host supervisors become too proactive, I think it can actually have a negative effect on the real or perceived stability of a group by locking in liquidity in branches,” said Anders Kvist, head of group treasury at Sweden’s SEB AB bank.
SEB has 193 branches in Estonia, Latvia and Lithuania, according to information on the company’s website.
“The concerns of host regulators are understandable but sound branch liquidity management can be best achieved by harnessing the group’s strength,” Kvist said.
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