[...]Brussels is considering two alternatives -- imposing stricter EU oversight over clearing houses in London or forcing some activities to relocate within the euro zone.
The U.K. is in no position to complain about the politics driving the discussion: This kind of jockeying for advantage was only to be expected. But wherever this business ends up, the main thing is that vital financial infrastructure is properly supervised and keeps working well. That's the overriding interest for both sides. [...]
The Bank of England and the ECB subsequently agreed on a framework of joint supervision. If London-based clearing houses needed emergency liquidity, a swap line between the two central banks would ensure the Bank of England had enough euros to stem financial panic.
This arrangement has worked well and, Brexit or no Brexit, has some advantages. It allows LCH to provide central clearing in multiple currencies, not just euros, all in a single pool, which lowers costs. However, it's vulnerable to a future breakdown of central-bank cooperation. During a crisis, would the Bank of England stand behind London-based clearing, even if the risks of failing to do so were concentrated in the euro zone?
Each of these models could be made to work, so long as close regulatory cooperation continues and the two sides don't lose sight of what matters most -- not which city gets which jobs, but the need for well-run international infrastructure and effective cooperation among central banks and regulators.
Britain has no right to insist that the business stays in London, and should expect to pay a heavy price for Brexit. But as this negotiation moves forward, Europe should also keep in mind its own larger stake in a smoothly running international financial system.
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