European Lawmakers Warn of Brexit Risks to EU Banks, Economy

  • European Parliament draft study analyzes financial regulations
  • Lawmakers plan for euro-clearing to be ‘major issue’ in talks

European Parliament officials have called for open discussions with the U.K. over Brexit and warned that a messy divorce process would damage the bloc’s financial industry as much as Britain’s.

The officials, writing in a draft analysis of financial rules ahead of negotiations set to begin this year, said the interdependence of the U.K. and European Union banking and capital markets makes a “workable agreement” critical to the health of the EU economy, according to a Dec. 13 document seen by Bloomberg.

“It is in the interest of EU 27 and the U.K. to have an open discussion on this point,” the document said. “If financial services companies choose to leave the U.K. as a result of Brexit, the consequences should be carefully evaluated. A badly-designed final deal would damage both the U.K. and the other 27 EU member states.”

The document, which assesses the impact of Brexit on more than a dozen current and pending regulations spanning the financial industry, said the U.K. accounts for 40 percent of Europe’s assets under management, 60 percent of its capital markets business and that U.K.-based banks provide more than 1.1 trillion pounds ($1.3 trillion) of loans to other EU member states.

While officials across the EU have stressed that they won’t engage in negotiations before they’re triggered by the U.K., the document shows that preparatory work is already under way. A related document said that all committees in the European Parliament had been asked to compile issues that will be affected by Brexit as part of the assembly’s preparation. The European Parliament will have to endorse any Brexit deal.

Market Stability

Bank of England Governor Mark Carney told lawmakers in London on Wednesday that choking off access to British finance was a risk of the Brexit talks, adding it may raise risks to financial market stability.

The European Parliament document also warned that the U.K. withdrawal could complicate regulatory efforts to oversee cross-border banking crises and rules put in place since the 2008 financial meltdown. The withdrawal could encourage banks to keep more capital and financial resources in specific jurisdictions, fragmenting banking and capital markets.

The lawmakers also are planning for the location of clearinghouses to be “a major issue” in negotiations if the European Central Bank presses for clearing of euro-denominated trades to occur in the euro area.

Attempts to contact the European Parliament press office for comment outside of normal business hours were unsuccesful.

— With assistance by John Detrixhe

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