U.K.’s Hammond Rules Out Paris as Winner of London Euro Clearing

While France and Germany vie for the post-Brexit spoils of London’s financial industry, U.K. Chancellor of the Exchequer Philip Hammond ruled out at least one of their capitals as a likely destination for euro-denominated clearing.

“It is not at all clear to me that the winner from clearing shifting away from London would be Paris,” Hammond told reporters in Washington today. “In fact, it’s abundantly clear Paris would not be the location many global banks would choose if they were forced to do business somewhere inside the European Union.”

Less than a week after Britain’s Brexit vote, French President Francois Hollande challenged London’s dominant role in the daily clearing of $570 billion of euro derivatives, saying the industry belongs on the continent. Global bank executives took that threat seriously -- they expect the bloc will prevail in the tussle and are making plans to deal with the fallout.

It’s a battle that’s been brewing since before the June Brexit referendum. Hammond’s predecessor, George Osborne, fought a legal battle to protect that business and won. Yesterday, Hammond told Bloomberg that it would be a lengthy and difficult legal process for the European Central Bank should it attempt to strip clearing from the U.K.

Clearinghouses are designed to prevent a default from spiraling out of control -- they act as a firewall by holding collateral and monitoring risks.

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