EU Capital Market Could Gain From Brexit, ECB’s Angeloni Says

  • International banks need to decide on move to euro area soon
  • ECB official says approved risk models contain useful data

Banks leaving London for Europe due to Brexit could give the continent’s capital markets a much-needed boost, said Ignazio Angeloni, a board member at the European Central Bank’s supervisory arm.

“This development represents an important opportunity for us, to develop the euro area financial structures further,” Angeloni said in an interview in Frankfurt on Thursday. “A more stable and significant presence of global players, with investment banking experience, will step up competition and may help create a stronger capital market in the continent.”

Britain is on track to leave the EU in early 2019 and at least half a dozen European cities are already jostling to present themselves as the best location for banks to set up shop on the continent. At the same time, the EU’s plans to establish a more market-based funding channel for the economy away from banks have been thrown into doubt by the U.K.’s decision, as most of the bloc’s capital market is located in London.

“It may also become easier to adjust the EU legislation to fit this purpose,” Angeloni said “The ECB will follow these developments closely and prepare for it.”

Model Approval

Several firms have contacted the ECB to say they are considering moving and are “starting a dialog” in case they do, he said. That development was also cited by Sabine Lautenschlaeger, the highest German banking supervision official, earlier this week, who confirmed the central bank is examining the impact of Brexit on its different areas of competence, from the economy to financial oversight and payment systems.

One of the major obstacles for large lenders wanting to shift their European headquarters to the euro area would be the approval of the internal models that they use to judge the riskiness of their assets. That approval can be a lengthy procedure that would entail a delay in being issued with a fresh banking license from the ECB. The alternative would be to “grandfather” existing models, or grant licenses based on existing U.K. approvals pending a later review.

Angeloni stopped short of that. The risk models underlying the European assets of international banks have already been approved by U.K. supervisors, meaning that “at the very least there is a big amount of useful information that we can exchange,” he said.

On Friday, Finland’s top bank supervisor Anneli Tuominen, also pointed to the risk model issue as something that needs to be resolved, and warned against allowing banks to engage in regulatory arbitrage.

“First they’ll need to decide on the conditions to ensure that all banks are treated the same, so you can’t move to one country that has more liberal conditions than another,” Tuominen said in an interview.

In light of the complexity of the situation, Angeloni said there’s a need to get moving with plans if banks are actually going to transfer.

“The implementation of Brexit will take time, but the possible relocation of their structures will take time as well; so they will have to decide soon,” he said.

— With assistance by Raine Tiessalo

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