The European Central Bank has talked with 50 financial companies exploring options to retain the so-called passport that grants them access to one of the world’s largest economies, said Pentti Hakkarainen, a member of its supervisory board. Most of those hadn’t submitted applications by the end of June, a deadline the watchdog said banks had to meet to be sure that they are processed by the time the U.K. leaves the EU next March.
“We are active in avoiding adverse impacts from banks not being prepared,” Hakkarainen said in an interview. “But we shouldn’t run their businesses on their behalf.”
The U.K. government doesn’t intend to maintain passporting rights and has instead proposed that both sides recognize one another’s rules, a plan the European Union has rejected. A Brexit without any divorce deal, which would plunge businesses into legal limbo, is also possible as contentious talks drag on and some members of Prime Minister Theresa May’s Conservative Party say they would prefer no agreement to a bad one.
Cross-border business existed before passporting, and some lenders may be betting that they will be able to continue as they did before, Hakkarainen said. Since the Brexit vote, other ECB officials have noted that more than 100 banks use their U.K. license to access the EU market.
Still, the ECB doesn’t view Brexit as a serious threat to financial stability in the euro area, Hakkarainen said. “Cross-border activity isn’t that big between the U.K. and the continent in direct borrowings and loans, or even in the case of debt and equity issuance on capital markets,” he said.
Hakkarainen, a former finance director at Outokumpu OYJ, says Brexit has taken some of the shine off of London compared with the time when he hired banks there to hedge the Finnish stainless steel maker’s foreign currency risks in the early 1990s. “It was a good, stable place for financial activities and now there is a dent in that certainty,” he said. He didn’t want to comment on the City’s longer-term prospects.
The ECB took on oversight of European banks at the end of 2014 with the establishment of the single supervisory mechanism. The watchdog has pushed banks to address their financial health, said Hakkarainen.
“Most banks are doing quite well, some extremely well,” he said. “We have also seen positive developments among problem cases. Just the existence of the SSM has brought a lot. With this preventive influence, banks do things already on their own.” [...]
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