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2017 articles on Graham BIshop's Blog

19 December 2017

Completing Banking Union: Eurobills as an Easy Step

As 2017 ends on a high note for economic activity, EU leaders have continued to call for the completion of banking union – a welcome decision to mend the roof while the sun is shining, rather than in the middle of the storm. However, there are many large and complex issues to be resolved to bring banking union to full fruition and the desired timescale is short.

If the EU wishes to take a small step that can be done swiftly, and without changing the TFEU, then my plan for a Temporary Eurobill Fund (more below) could even be implemented before the 2019 European Parliament elections. It would make a significant contribution to banking union by providing a “safe asset” to banks, thereby sharply cutting the `doom loop’ between banks and their sovereigns, thus directly reducing the riskiness of banks. The indirect contribution from enhancing the economic goverence process would be a more fundamental, longer term benefit.

·         Council President Tusk stated after the 14/15 Dec Summit that “The summit participants agreed with my proposal that in the next 6 months, the work of our finance ministers should concentrate on areas where the convergence of views is the greatest. Progressing step-by-step on issues such as the completion of the Banking Union should significantly strengthen the resilience of the EMU…. I will call the next Euro summit already in March to continue this discussion. And June could be the moment for us to take the first decisions.”

·         This Eurozone commitment reflected the Joint Declaration on the EU's legislative priorities for 2018- 2019  “The three Institutions agree to deliver a positive agenda for a more inclusive and more united EU we will give priority treatment in the legislative process to the following initiatives to ensure substantial progress and, where possible, delivery before the European elections of 2019 ….3  by pursuing efforts to deepen our Economic and Monetary Union, and by completing our Banking Union in a way that balances risk sharing and risk reduction;”

What is the Temporary Eurobill Fund[1] (TEF)?

The TEF is a simple “plainest of plain vanilla” plan for a common institution to purchase the under-two year debt issuance of participating states. The institution would finance such purchases by issuing its own bills - matching its assets in overall volume and maturity. The TEF’s legal structure would replicate the ESM. The TEF is a replacement of existing debt, rather than a mechanism to increase debt. Indeed, by fostering better economic policies, it should encourage further falls in public indebtedness. 

However, the political implications go far beyond a simple financial institution because the TEF - to paraphrase Monnet’s words – “fuses the interests of the Eurozone peoples” into a vital component of the Eurozone financial system, rather than seeking to balance national interests. That system needs a European-level “safe asset” to replace its existing holdings of a hotchpotch of national instruments that came perilously close to dis-integration in the heat of the Great Financial Crash.

The time is now ripe to begin implementing Schuman’s dictum: take some “concrete steps... to achieve de facto solidarity”

[1] “Response to Commission Reflections on Deepening EMU: “Eurobills” as a Safe Asset that blends Fiscal Rules progressively with Market Discipline” (More in my most recent technical paper)

“Plan for a Temporary Eurobill Fund (TEF): Complementing with a strong European Monetary Fund (EMF); Satisfying the Core Principles that pave the way to a Stability Union”  (More on the politics)


18 December 2017

Banking Union: the State of Play

The push is on to complete Banking Union, writes Graham Bishop, who takes stock of the progress so far and next steps, and recognises that, once the EU27 has completed this huge project, "it is difficult to see an offer of re-shaping it just to meet the wishes of British exceptionalism."


Full article available for consultancy clients

14 December 2017

A ‘moderate’ breakthrough in the Brexit impasse: the Commission decides to move on to phase II but sticky issues drag on 

This month's 136th Brussels for Breakfast debate and CPD Notes took stock of Theresa May's last-minute deal with the Commission to recommend 'sufficient progress' to begin trade talks. The endorsement of Basel III revamped rules and the upcoming MiFID II and IFRS9 packages were also topical.


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21 November 2017


135th Brussels for Breakfast – CPD Notes

Likelihood of a no-deal on the rise: The no-Brexit option finds its way back to the table

Graham Bishop/Paula Martín
Highlights from the "Brussels for Breakfast" meeting
“493 days until we go over the cliff” dominated the discussion in various ways as opinion polls are now showing a distinct shift towards the UK public feeling that a wrong decision had been made and only one third approving of the government’s handling of the Brexit negotiations. So it may yet be important that legal opinion seems to be lining up behind Lord Kerr – author of Article 50 – that the UK can withdraw its Notice – implicitly assuming that EU27 would welcome such a move.


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10 November 2017

Plan for a Temporary Eurobill Fund (TEF) - article for Financial World magazine

What is the Temporary Eurobill Fund (TEF)?

The TEF is a simple “plainest of plain vanilla” plan for a common institution to purchase the under-two year debt issuance of participating states. The institution would finance such purchases by issuing its own bills - matching its assets in overall volume and maturity. The TEF’s legal structure would replicate the ESM. The TEF is a replacement of existing debt, rather than a mechanism to increase debt. Indeed, by fostering better economic policies, it should encourage further falls in public indebtedness.  (More explanation in my most recent technical paper)

However, the political implications go far beyond a simple financial institution because the TEF - to paraphrase Monnet’s words – “fuses the interests of the Eurozone peoples” into a vital component of the Eurozone financial system, rather than seeking to balance national interests. That system needs a European-level “safe asset” to replace its existing holdings of a hotchpotch of national instruments that came perilously close to dis-integration in the heat of the Great Financial Crash.

The time is now ripe to begin implementing Schuman’s dictum: take some “concrete steps... to achieve de facto solidarity”


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3 November 2017

Brexit Transition – is there a Plan B?

Time is not on the UK’s side in these negotiations: The latest ONS annual Pink Book on the UK’s balance of payments shows a further deterioration of the current account to 6% of GDP (£114 billion) in 2016. The traded goods deficit was only partially offset by a massive surplus on services– mainly financial. It is this financial surplus that is so clearly at risk from an inadequate transition, but any impact on goods exports will underline the UK’s precarious position as they only cover 70% of our imports.

So the UK is becoming ever more reliant on the “kindness of strangers”- in BoE Governor Carney’s deft phrase. This acute vulnerability is only likely to be exacerbated by the debates on exactly what “transition” means, and how long it might last.

  • No Brexit at all– the Article 50 notification of “intention” to quit can be rescinded, and all the evidence is that EU27 would still welcome that.
  • EU27’s “Prolongation” superficially resembles May’s “Implementation”:  Could this be Plan B? But the UK’s politics seem to make it dead in the water, especially when answering the PM’s question “what happens when one of us wants to make changes.” She paid scant attention to the inconvenient fact that the EU27 is 6-7 times the size of the UK.

In the next few weeks, an agreement must be found on the divorce arrangements, or the cliff edge is clearly in sight just 511 days away. But if history is any guide, the “strangers” who are kindly funding our huge excess of imports are likely to panic well before we go over the cliff. The consequences of such a currency panic will bring Britain’s electors face-to-face with grim reality.

Brexit may well not happen at all.

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18th October 2017

May’s Florence speech momentum stalled over the Brexit bill - 134th Brussels for Breakfast – CPD Notes

The Prime Minister's golden vision of Britain after Brexit that she painted in Florence provided momentum in the separation talks as it gave a softer tone that was welcomed in the EU, but Europeans 'want their money' too and talks soon reached a blockage over the sum needed to exit the bloc.

Highlights from the “Brussels for Breakfast” meeting

“528 days until we go over the cliff” dominated the discussion… do we actually go over an economic (rather than legal) cliff or will it be more of ever-steepening slope? No-one contested the gravity of the situation and we reviewed various official warnings about the latest time when UK firms would have to hit the “re-locate” button. It will vary by a particular firm’s business profile but the consensus was that irrevocable change would have to begin by the end of 1Q 2018 if no acceptable agreement was in sight. My outline of the timetable for the legal steps to agree a “transition” – see my post-Florence speech blog - seemed to be accepted as plausible. My timeline is 9-11 years before the transition would be in force… though some shortening may be possible – unless the transition is effectively to stay as we are. [...]

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2nd October 2017

Graham Bishop presents his plan for a Temporary Eurobill Fund (TEF) at France Stratégie

Graham Bishop presented his plan for a Temporary Eurobill Fund (TEF) at France Stratégie - a public research institution that depends directly on the First Minister cabinet - on 26th September. 

The 1.5 hour event included vigorous discussion, enabling broad understanding that the plan could start a process of building “concrete steps... to achieve de facto solidarity” - to quote the famous Schuman dictum. The plan would follow Monnet’s  brilliant methodology of something that is effective and incorporates subsidiarity yet has a clear direction of travel – whilst maintaining democratic support.

The TEF is designed to build confidence and trust steadily – amongst the nations, institutions and peoples - so that the ultimate results could be increasingly notable over say the next decade, starting with an apparently small technical step: issuing under–two year maturity public debt through a common institution.



Full article

22nd September 2017

Reflecting on the detailed content of PM May’s Florence speech: 553 days until we go over the cliff

The speech today was long on the desire for creative visions on the part of EU27 leaders but short on why they should divert from the visions they set out to achieve for themselves on the 60th anniversary of the Treaty of Rome. They are increasingly clear where they want to go – and the German election on Sunday – may cement the roadmap.

What exactly is it that Britain is proposing that will make life so much better for `them’ that they might wish to change course? Nine months after the “Lancaster House” speech, still not a word about practical details… just calls for a brave new unspecified world. Moreover, the calls for a new type of partnership on economics and security seem to fail to recognise the length of time that such negotiations take:

·         On the EU side, such a profound Treaty might require an Intergovernmental Conference to prepare the ground – two years

·         Formal negotiations – another two years??

·         Unanimous ratification by all EU27 states and probably by many sub-national bodies –, especially if some countries decide on referenda – two years at least

·         Converting lofty Treaty language into precise changes to the texts of EU Directives and Regulations so that all economic actors know exactly what they can/cannot do:  

o   Consultations by Commission with stakeholders (as part of Better Regulation Agenda) – one year

o   Commission prepares vast numbers of legislative text changes – a year?

o   Council and Parliament (as co-legislators) agree the exact text – another year?

o   Implementation phase to allow national laws to be changed – usually two years.

·         Grand total: 11 years (NOTE: EU and Canadian leaders agreed to a new trade framework in 2004 and it has just come into force … 13 years later)

So UK business – in relation to its EU trade – goes over the cliff in 553 days. Or is it 553 days + 2 years of Implementation Period.  Eleven (or nine?) years later, the detailed legislation that enables them to trade in the EU will be in force. What happens in the interim? 

19th September 2017

The Brexit gridlock: No ‘significant progress’ to move on to trade talks soon - 133rd Brussels for Breakfast 

The British’ ambition to reach an early deal on cross-border trade after Brexit has met a wall in Brussels: European negotiators won’t unblock talks over trade before Britain secures EU citizens’ rights and Northern Ireland status, and agrees to foot a bill. [...]

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13th September 2017

Response to Commission Reflections on Deepening EMU:

“Eurobills” as a Safe Asset that blends Fiscal Rules progressively with Market Discipline

Summary and Conclusion

  • The electoral calendar of EU27: a rare period of stability seems to lie ahead.  After the French Presidential/Parliamentary elections and the strong likelihood of a fourth term for Chancellor Merkel, EU27’s politicians have reason to feel that anti-EU populist surge has passed its peak.  
  • The economy is now in its fourth year of expansion– providing space for visionary ideas to re-appear from the shadows.  The policy prescriptions of the 2015 Five Presidents Report are now being discussed with a view to implementation during its `Stage 2’ – by 2025.  A grand bargain of major economic reform in France – if carried through – should be met with some positive German support for deeper financial integration in the Eurozone as the riskiness of integration declines – from both governments and banks.
  • The European Commission’s Reflection Paper on deepening the EMU laid out possible actions for further analysis and the economic rationale was analysed in greater depth in a Vox paper[1].
  • The principles required for progress in deepening EMU are clear and include:

o   No mutualisation of debts;

o   Respect for the post-crisis economic governance system (Maastricht 2.0);

o   A proper role for market discipline;

o   “Safe asset” to reduce the `doom loop’ between banks and their government;

o   Financial solidarity with states that respect the rules yet lose market access.

My plan for a Temporary Eurobill Fund (TEF) satisfies these principles. There should now be further [2] examination of its mechanics as the TEF would be a “concrete achievement”.


[1] Buti, Deroose, Leandro and Giudice – July 2017

[2]This plan was examined by a European Commission Expert Group that included this author, and published its final report in March 2014.


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11th September 2017

Graham Bishop's evidence to House of Lords EU Committee – Financial Affairs on Financial Regulation and Supervision following Brexit

Graham Bishop's Evidence for this Enquiry[i] focusses on the issues of “adequately aligned regulation and financial stability”, given the international influence from the FSB and BCBS. It relates principally to Questions 2, 6, 14 and 15.

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5th September 2017

May to climb down - rather than crash over - the Brexit cliffs by end-September? Probably, a historic crash over!

The UK media is in a frenzy about “The Price” but the EU seems far more worried about the plight of its citizens in the UK – read Barnier’s speech at the press conference last week. The speech gives a very different feel from the upbeat assessment by DEXEU Minster Davis on Sunday’s Marr programme. Barnier highlighted the mistake – apparently not for the first time - of the Home Office (who was the MinIster in charge for many years?) in sending deportation letters to 100 EU nationals. That former Minister (now Prime Minister) even had to apologise for this “unfortunate error”.

But now POLITICO reports that the European Parliament – which must agree to the final deal – is about to publish a report with “danger zones where rights are likely to be put at risk (red). The chart was marked red for more than one-quarter of the 69 identified rights issues.”

Moreover, Irish Foreign Minister Coveney was still asking very pointed questions about “How do we do that [maintain the free travel area]” at yesterday’s Press conference with Barnier. Clearly, he does not feel that UK suggestions are anywhere near solving this problem.

Parliament’s co-ordinator Verhofstadt is quoted as saying that Parliament will aim to vote their report by the end of September, so ahead of the formal decision by the European Council on whether “sufficient progress” has been made.

It looks as though Prime Minister May’s `major statement’ apparently planned for later in September may have to be a massive climb down - rather than crash over - the cliffs. Sadly, the omens are not good.

19 July 2017

No ‘strong and stable’ leadership in the first rounds of Brexit talks

The talks over the disconnection of the UK from the EU begun and the picture of the meeting showed a clear imbalance: Michel Barnier boasted about EU27 unity and brought a stack of papers; David Davis wasn’t carrying any documents, but growing political dissent at home could be heard from Brussels. 

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11 July 2017

An autumn bank stampede to relocate?

A string of UK-based banks and insurers has announced plans to set up “offices” around the EU, or to “go home”. What do they really have to do to achieve their goal of continuing their business in the EU – but cost-effectively? 

So far, banks have announced most frequently a move to Frankfurt whilst insurers are more widely spread – triggering complaints from some countries about a “race to the bottom” in regulatory standards.

Even at this early stage, the EU regulatory community is responding to such charges and laying out some of the obvious ground rules. The comments are no more than one would expect (and hope) from prudent regulators – but do make some of the more extravagant claims from Leave campaigners look distinctly naïve already. After all, the EU is still struggling with the aftermath of the Great Financial Crash with continuing bank resolutions and liquidations.  It would not make any sense to allow a sizeable part of the EU financial system to be run by “brass plate” companies from a third country that had explicitly rejected abiding by EU standards and enforcement.

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14 June 2017

CCP Location: The Endgame Arrives as EU27 Safeguards its Financial Stability

UK commentators and media seem to be unaware of the solid rationale (supported by the UK on many ocassions) for the EU to feel it necessary to propose fresh legislation to safeguard its financial stability upon the departure of a major member that is home to the key parts of its financial infrastructure. British commentary views CCP location as little more than a power play to grab tax revenues and jobs. 

However, this argument should be about very remote - but nonetheless thinkable - risks that might crystalise in the heat of a huge crisis. After all,  the “unthinkable “ happened frequently in 2007/8 so any responsible political system should carry through its commitments to global and national society to ensure its financial stability.

After the UK Referendum, can the EU27 now be certain beyond any doubt that – at the most dreadful moment of a crisis – the UK would allow the EU to “induce change” in a UK-based company? If the ECB were asked to provide multi-billions of euros of emergency liquidity for intra-day margin calls, can it be certain beyond any doubt that it would be repaid if the UK subsequently argued that the process was unreasonable or flawed?

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13 June 2017

The Brexit boot moves decisively to the EU27 foot – 131st Brussels for Breakfast

May's gamble to secure an absolute majority ended up in a hung Parliament that may yet change the UK's stance in Brexit negotiations. The EU27 toughened its language in the Council authorisation for starting the Brexit talks. ESMA's plan to ban “letterbox” entities signals real trouble for the City. 

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9 June 2017

Europe is the sword of Damocles poised to split British politics yet further - soon

The British people have rejected the hardest of hard Brexits – but what are the practical alternatives? There aren’t any – except to stay in the EU.

The hard-line Brexiteers still do not recognise the economic harm they have already inflicted on Britain – with more developing rapidly beneath the surface. They will prevent the UK Brexit negotiators from putting forward a coherent policy and the two-year clock to March 2019 departure will tick increasingly loudly for commerce in Britain, raising the tempo of economic damage suffered by electors.  

As the pound drops, so will the `penny’ as voters increasingly experience the harshness of Brexit and realise how much they have been misled. They will demand a further referendum as the only way to give their representatives in Parliament a clear mandate for sorting out the mess – but they may also insist on a new set of representatives who tell them the truth.

The unpalatable alternatives are simple as some special `bespoke’ deal now looks even more unrealistic:

  •          Staying in the `customs union’ means the mythical idea of negotiating hosts of free trade deals around the world would have to be formally buried.
  •          Remaining in the `single market’ means that its rules would continue to be enforced by the European Court of Justice. If they are not, then by definition it would not be `single’. The hard-line Brexiteers will never accept `bending the knee’ to the ECJ’. It also means the `four freedoms’ must remain – including the totemic concept of free movement
  •          Joining EFTA (if they will have us…) requires accepting both the above – with the added disadvantage for the UK of simply taking whatever rules the EU27 care to agree in the future.

10 May 2017

130th Brussels 4 Breakfast Notes: The Brexit talks - temperature rising, clearing end-game!

The EU27 leaders agreed their red lines for the upcoming Brexit negotiations while PM May announced a snap election and called for a strong mandate to secure a good deal. But the election won't change talks one bit, the EU warned, and Brussels is closing in on London euro-clearing business. 

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8 May 2017

CCP Location in EU: Endgame now in sight

The location of Central Counterparties (CCPs) seems to have become a totemic issue for the City of London in the Brexit negotiations. Indeed, the White Paper in February devoted one of its 77 pages to financial services – a sector that provides 11% of the UK’s GDP.

In part, these economic benefits flow from London’s role as the centre of clearing derivatives in the European time zone. The scale of these markets is almost unimaginably large: each of the euro and dollar denominated sectors are more than 50 times the UK’s GDP. How much of the City’s £75 billion contribution to the UK’s balance of payments is attributable to this business? Despite these inflows, the current account is still in deficit by nearly £100bn (5% of GDP).

Full article available for consultancy clients here

4 May 2017

European Commission proposal on CCPs

Commission VP Dombrovskis laid out some principles on CCP supervision today and there is not much need to read between any lines!

“And so it makes sense that the EU carries a certain amount of common responsibility for their supervision. This is an issue we are considering, as we further develop our Capital Markets Union and review the functioning of the European Supervisory Authorities….For third country CCPs which play a key systemic role for the EU, we are looking in particular at two possibilities for enhanced supervision: We can ask for enhanced supervisory powers for EU authorities over third country entities. Or such CCPs of key systemic importance for the EU could be asked to be located within the EU. We now need to look at these options in the impact assessment.”

My comments:

  • Within a deepening CMU, It will make clear sense for ESMA to be the direct regulator of the small number of EU-based CCPs.
  • For a post-Brexit UK – as a `third country’ -  the implications are equally clear:

o   Enhanced EU supervisory powers over a UK-based CCP: Will the Leavers agree to such an oversight when it must carry with it a submission to the ECJ’s jurisdiction? Moreover, the ECB’s location policy statement after the Referendum made clear that the supervisor has to have the power to “induce change”. The Leavers’ demands to “take control” make it difficult to see this option being acceptable to the current UK Government.

o   “...could be asked to be located within the EU…” seems to leave open the possibility of clearing remaining in London if it is part of the EU but if the request to re-locate is refused, then what?? It would be surprising if the Eurozone were willing to let its monetary institution – the ECB – take the risk of advancing enormous quantities of liquidity in a crisis to a CCP over which it had no supervisory power. Once the CCP’s customers realise the implications, they might well prefer to deal with a CCP that could rely on emergency support in a crisis.


NOTE: these issues were discussed in detail in my report “Euro “clearing”: Liability and Location” of 15h January 2017. Available to consultancy clients here; Friends here or contact to request a copy.

25 April 2017

Rome Declaration  - 25th March 2017

A Eurobill Proposal for the Commission Reflection Paper on Completing the Economic and Monetary Union

The tide of eurosceptic nationalism seems to have passed its high water mark: the French and Dutch people appear to have rejected it, leaving only Britain beached by the deceptions of the nationalist Brexiteers. The 60th anniversary Rome Declaration charted a way forward to greater unity of the EU, and the European Commission has undertaken to produce a Reflection Paper on “ideas, proposals and options” by end-May on the deepening of the Economic and Monetary  Union.

The time has now come for the Commission to lay out a menu that includes bold steps for consideration by the newly-mandated Heads of Government in December (or March 2018). The structure and governance of the TEF – in reality – provide a comprehensive political, economic and financial plan to deepen the Economic and Monetary Union, quite apart from meeting the technical need for a `safe asset’ for banks. 

Accordingly, Graham Bishop has refined further his plan for a Temporary Eurobill Fund (TEF) link since it was reviewed favourably by the European Commission Expert Group[1] on DRF and Eurobills in 2013, and commends it to the Commission for consideration in its Reflections.

Full Eurobill proposal available here

18th April 2017

PM May calls a snap General Election for June 8

Her volte face suggests she does not have confidence that she can get her Brexit “deal” through the existing Parliament. So this will be the "Brexit Election” and the 48% of the voters who wanted to “Remain in the EU” will have a chance to vote for Members of Parliament who will represent their views on the most crucial subject of our generation, rather than along traditional “party lines”. UK voters will be asked to engage their attention in a way that has not been required since the 1945 election created a new political landscape after World War II. PM May’s gamble has opened the proverbial Pandora’s Box.

11th April 2017

Notes on 129th Brussels for Breakast

The B4B debate became very animated about all the implications of a - presumably co-ordinated barrage - when BoE Governor Carney delivered a speech arguing for “super-equivalence” though now in the form of “deference to each other’s comparable regulatory outcomes...and open supervisory co-operation” backed by an independent dispute resolution mechanism. Curiously, the PRA sent out a letter at the same moment on contingency planning. This pointed out that EU firms operating in the UK might well come under PRA supervision and “in that case, we would need to form our own judgements rather than relying exclusively on those of others” – perhaps a contrast to deference.

The B4B debate suggests that, despite the hopes of the UK commentariat that such lofty sentiments as the Rome Declaration have no practical implications, events may yet happen that will profoundly re-shape the financial services industry in the UK.

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Full Workbook available to CPD and consultancy clients  (coming soon)

29th March 2017 - late

Comments on draft EP resolution: Revoking Art 50

It is a sad reflection on how far trust in the UK’s good faith has sunk already that the European Parliament feels obliged to include clause L – see below. The most likely route to making a request to revoke the “notice of intention to leave” would be through a further Referendum on the proposed exit terms – or perhaps a General Election.  

If such a well-grounded request to revoke and remain in the EU on current terms were refused on purely political grounds that would represent a dramatic repudiation of the essence of the European Union. At the other extreme, if it were a disgracefully blatant manoeuvre by the Brexiteer component of the current UK government, then its refusal would be entirely understandable and appropriate.

29th March 2017

Prime Minster May finally delivers the “Article 50” notification of intention to leave the EU.

Her six-page letter stated four times that the future partnership terms should be agreed alongside those of withdrawal.  The first, brief response from the European Council baldly stated “we will start by focusing on all key arrangements for an orderly withdrawal.” The UK government’s strategy seems to have failed to survive the very first contact with the other side.  

The letter admits there will be “consequences” – as did the Chancellor this morning. These may come as an unexpected surprise to the 90% of voters whom pollsters report want to remain in the single market.

Mrs May addressed Parliament this morning:

  •  She promised to "represent every person in the whole United Kingdom" during the negotiations. This may be a difficult task as only 37% of the electorate voted to Leave.
  • Further, this marks "the moment for the country to come together". She did not mention that 100,000 citizens – mainly from “middle England” - marched through the streets of London on March 25th to protest against Brexit and join in the 60th birthday celebrations for the EU.
  • “This is an historic moment from which there can be no turning back." EU legal opinion seems to have a clear view that an “intention” can be revoked – as is common sense and the explicit view of the author of Article 50 - Lord Kerr.

President Tusk’s response was clear “But paradoxically there is also something positive in Brexit. Brexit has made us, the community of 27, more determined and more united than before. I am fully confident of this, especially after the Rome declaration, and today I can say that we will remain determined and united also in the future, also during the difficult negotiations ahead… This means that both I and the Commission have a strong mandate to protect the interests of the 27.”

The 63% of British voters who did not vote to Leave may yet force Prime Minster May to ask their permission to accept the terms that result from this negotiation.

 Friends' article

Consultancy clients' article

20th March 2017

Resolution Capital: A Doomsday Machine for Europe’s Banks?

The post-Crash re-ordering of Europe’s financial system is coming to an awkward phase – rather like striding across a chasm. One foot is still on the shaky ground after the Crash and the other is past the point of no-return on the way to the presumed financially stable ground on the other side. 

On that side is a world of safe banks lending to the real economy and partially funded by knowledgeable investors taking a modest risk. Those same investors will also be buying securities to provide an alternative source of funds to the economy – secure in the knowledge that Capital Markets Union will provide a safe market structure for their investments. The snag is that there is still quite some uncertainty about the exact location of the cliffs at the edges of the chasm. [...]

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9 March 2017

128th Brussels for Breakfast – Notes

Paula Martín/Graham Bishop

Following the House of Lords votes to amend the “Article 50” Bill, the “B” subject was unavoidable and discussion moved to the EU27 response. It seems that Barnier’s team is in place and ready to receive its mandate and negotiating guidelines from a special session of the European Council. Then the phoney war will be over and negotiations can start in earnest. However, few thought that two years would be enough to handle the incredible scale and complexity of the talks. Indeed, it is possible that the UK will revoke its notice once the complexities and problems become fully apparent. Recent opinion polls suggest that +/- 30% want to leave the EU at any price, but more than 50% are showing reservations about a Hard Brexit. High profile speeches by former Prime Ministers Blair and Major re-inforce the growing qualms.

Brexit is but one of the factors forcing the EU to take a hard look at itself and President Juncker has now published a White Paper on five options – to inform the debate at the celebrations for the 60th anniversary of the Treaty of Rome. However, the “Big 4” leaders met in Versailles and made clear their preference for a multi-speed Europe (Option 3). For financial services, that means “incremental progress on improving the functioning of the euro area” – in other words, continue along the existing path. A May Reflection Paper will elaborate the content - after the French elections.


The Commission’s Staff Working Paper on equivalence triggered a lengthy debate as it is so fundamental to the City’s hopes of retaining its role as the financial capital of Europe. The omens do not seem good as the Commission is set to take a tough line in defending the financial stability of the EU27 rather than mercantilist support for the trading opportunities of London-based banks. It became very clear that an apparently-technical decision on equivalence has always been – in reality – a political one. [...]

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15 February 2017

Graham Bishop on the clearing of euro derivatives after Brexit at the Kangaroo Group Financial Services Working Group meeting 

Graham Bishop addressed the Kangaroo Group Financial Services Working Group lunch in the European Parliament on 8th February. He spoke about “Clearing of euro derivatives after Brexit: a fatal blow to the City of London?” He explained this intensely technical subject in layman’s terms and concluded that it is likely to be a very serious problem. His main arguments are set out in his recent paper.

Mrs Danuta Hubner – Chair of the Committee on Constitutional Affairs and Member of ECON responded. She noted that the European Parliament will receive all the information that goes to the other EU institutions and that financial services regulations will surely be the most complex issue. The EP will start serious work on the EMIR Review in March, followed shortly afterwards  by the CCP Resolution proposal.


Friend's article

15 February 2017

127th Brussels for Breakfast – Notes

Paula Martín/GrahamBishop

The 'Brussels for Breakfast' debate tackled the most relevant issues this month in the EU, such as the UK Government's 'Brexit White Paper' - which provided very little further information than May's Lancaster speech and had only one page devoted to financial services. 

The IRSG report on “The EU's Third Country Regimes and Alternatives to Passporting” was another 'hot topic' - the document called for the agreement of a bespoke UK-EU deal in the Brexit negotiations rather than reforming or adapting existing frameworks.

Mark Hoban and Graham Bishop discussed the Commission staff paper on “Bank lending constraints in the euro area” and a BBA report on how IFRS9 rules will affect capital requirements.

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3 February 2017

Financial Regulation - Science and Art

The 'science and art' of financial regulation represents a difficult balancing act between sometimes competing objectives, said Felix Hufeld in an OMFIF City Lecture in London on 1 February.

Hufeld, who is president of BaFin, the federal financial supervisory authority of Germany, said part of the role of regulators is to give financial markets enough room 'to create, innovate and indeed fail'.




·         Graham Bishop asks about the risks posed to investors buying bail-inable bonds in a world of supervisory discretion and unpredictability.


2 February 2017

The Brexit White Paper

No plan of operations extends with any certainty beyond the first contact with the main hostile force”:19th century German General von Moltke

Prime Minister May is already running into some uncertainties with her internal enemies that are causing her plans to fragment before any contact with the external enemy across the Channel: Giving Parliament a vote on Article 50; publishing a White Paper; giving Parliament a vote on the final deal, with perhaps more to come.

The White Paper does not seem to add anything to the 17th Jan Lancaster House speech – at least in the financial services sector. 

Delivering a smooth, orderly exit from the EU requires transitional arrangements that will require huge and lengthy legislative activity in the EU. This could easily be the moment when “the plan” comes into contact with the main hostile force: the EU27.

More for Friends (details): link to article

More for consultancy clients: link

30 January 2017

Resignation from FSNF Executive Committee and termination of further participation in the Forum

There are several reasons for my decision to cease to participate in any way in the Forum:

  • You are aware that I was very disappointed with the way the other members of the Executive Committee handled the launch of the recent Forum paper on Clearing. I was not informed about the content of this paper or the precise timing of its publication until 36 hours beforehand – knowingly in direct competition with my own publication. I do not feel that was an appropriately collegiate approach and certainly was not “agreed by consensus”.
  • The Forum was set up to “debate evidence-based research” and to “follow a rigorous, analytical process”. (It was a shock to me to realise that the Leave campaign had not done this type of detailed work before persuading British voters to leave the EU.)There was a clear contrast between the outstanding paper on Equivalence from Norton Rose and the approach to calling for other papers on clearing and liquidity. My explicit criticisms of the quality of these papers were almost entirely ignored in a way that, after the Clearing paper process,  gives me no confidence that the approach in the future would be “rigorous”, and then “agreed by consensus”.
  • I believe you have had copies of my comments on the Prime Minister’s Lancaster House speech. The Government has now had sufficient time to assess its options and I believe that this now-settled policy will inevitably inflict deep, long-lasting damage on the UK’s financial services industry. So the only patriotic course of action from now on is to campaign whole-heartedly for a decision by the electorate – probably in the form of a further referendum - explicitly on the terms of departure that the Government eventually proposes.

Full letter

25 January 2017

Supreme Court on withdrawing the Article 50 Notice: No view! So over to ECJ

Following yesterday’s judgement, anyone with commercial interests in the UK must wonder if this historic `game’ of having/eating cake is now over. The answer will depend on whether giving notice of an “intention” can be withdrawn. The common man would say “of course it can” otherwise why bother with stating an `intention’ rather than just doing it.

The author of the article – Lord Kerr – has stated explicitly (link) that the intention can be withdrawn as, on his kitchen table, he wrote such a phrase into the draft Treaty. But he accepted the strong statement from Jean-Claude Piris – then   Chief Legal Counsel to the European Council – that it was so obvious you could cancel a mere `intention’ that he deleted the phrase. Last September, in an article for the Financial Times, Piris re-confirmed his strong view (link) that withdrawal is possible – naturally, only up to the point where we actually leave.

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24 January 2017

125th Brussels for Breakfast – Notes

Paula Martín/GrahamBishop

This blog covers the key subjects since our last meeting that I hoped to cover but, as always, we ran out of time to deal with them all. As a Friend, you can watch the 19th `structured’ CPD web-cast with CISI. These Notes may be read to record a further 30 minutes of `structured CPD’, including a dipping into the links to the underlying stories.

Highlights from the “Brussels for Breakfast” meeting

The first meeting after the Christmas break attracted a large - and vocal – audience! Naturally, Brexit consumed half the time but we still covered some very detailed issues in banking and securities.

Opinion polls show there is not yet any sign of an upsurge in other major states wishing to leave the EU and that UK voters are unwilling to pay even a significant price for Brexit. So Prime Minister May’s speech last week was dissected at some length – particularly the tactic of being willing to walk away as that weakens commercial operator’s confidence in possible transitional agreements. Such arrangements cannot be assumed with any degree of confidence until late in the process. In any case, I put the argument (detailed in my Clearing paper: link for clients or request an Invoicethat the legal formalities of such a process may be lengthy.


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23 January 2017

State of Play for CMU – Now in a Brexit World

Back in the now-distant days when UK’s European Commissioner Hill was in charge of financial services, his concept of Capital Market Union was widely seen as a major benefit to Britain. Now that the UK is about to serve notice of its intention to quit the EU, what is the outlook for progress on CMU? 

Hill triggered a deep and comprehensive review of the post-Crash legislation with a major Call for Evidence on its functioning – as well as proposing several specific pieces of legislation. The bureaucratic machine has continued to grind forward – and will continue to do so unless there is a new political impetus to halt it in some way. The list of measures actually agreed, or progressed substantially, under the Slovak Presidency is impressive, especially the low-hanging fruit:

·        The Prospectus, Shareholders Rights, Money Market Funds and Venture Capital Directives are now `politically’ agreed.

·        On STP securitisation, ECON has adopted its position ready for trialogue with Council this year. Eight leading European trade associations have highlighted the importance of securitisation for jobs and growth in Europe, and underlined their commitment to supporting a safe and sustainable market that serves the real economy.

·        The Commission completed the endorsement of IFRS9 - applicable from 2018 but immediate adoption is “encouraged”. This moves banks’ loan loss provisions from an “incurred” basis to “expected”. [...]

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17 January 2017

Theresa May's Brexit speech

Prime Minister May delivered her much-trailed “Brexit framework” speech this morning… but is it coherent and consistent? The short answer is No. The plan is riddled with inconsistencies and sets out to `cherry –pick’ the Single Market – precisely what EU27 have refused to countenance as it would open the door to a complete undermining of the Single Market. This great Parliamentarian has graciously agreed to allow Parliament a vote on the final deal… but it is actually putting a cocked gun to Parliament’s head: refuse the deal and we crash out of the EU in a few months’ time with no deal at all. Maybe EU 27 will suddenly offer unanimous agreement to a longer ratification period once the deal is agreed. Then the deadline would fall beyond the May 2020 date for the UK’s next General Election. An outbreak of democracy forced on the Mother of Parliaments by the EU!

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16 January 2017

Euro “clearing”: Liability and Location

This issue of `clearing’ is likely to come to a head quickly once Article 50 Notice of `intention to leave’ is served by the UK . Post Brexit, Eurozone Member States are likely to be very concerned about capital market activities denominated in euro that – in a crisis – could create liabilities for their taxpayers. At that stage, UK-based financial firms will not be subject to EU law and therefore outside the ECB’s ability to enforce any necessary managerial change – unless the UK agrees to surrender control to EU institutions.  Prime Minister May could well rule this option out in her widely-trailed speech tomorrow.

·         However, it is very disturbing to an outsider that, eight years after the Lehman crash, there are still good grounds for concern in a systemic crisis.

·         The magnitude of the risks are extraordinary: The key interest rate contracts cleared in the UK are more than 50 times UK GDP, and 10 times the Eurozone’s GDP.

·         Does the EU27/ECB need to “do” anything further about Brexit? The ECB’s post-Brexit re-statement of its “oversight policy” provides a powerful analysis – implicitly - of the post-Brexit situation.

·         A major loss of derivatives business could worsen the UK’s balance of payments deficit by a third from its current record deficit - even at modest profitability levels for the derivative book.

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