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Despite French and German threats to claw away clearing in euro-denominated derivatives, Britain will probably continue to house trillions of euros of swaps trades because limiting where the operations can take place could backfire, said the executives from several global firms, speaking on condition of anonymity at events around the Swiss ski resort. Imposing controls on how and where the common currency is used could damage its reserve status, they said.
[...] Bankers have not been unanimous in their views, however. Executives at four of the biggest global investment banks in London in September said they expect France and Germany will prevail in the clearing tussle.
One of the executives at Davos said forcing a move would pose risks to financial stability, a point the banker plans to make to EU policy makers.
[...] Separate industry officials have said it’s also desirable to keep derivatives clearing in the U.K. because traders prefer the country’s bankruptcy law. [...]
Euro clearing could leave London without being forced to do so, said Graham Bishop, a consultant on EU integration and a former banker. Traders may need to clear euros in the EU if they believe that’s the only place where the European Central Bank will prop up a clearinghouse during a crisis, he said. That’s because the ECB is the lender of last resort for euro assets.
“They’ve put customers on notice that they’re more vulnerable elsewhere,” Bishop said. “Customers will make up their own mind. I’m not sure the ECB needs to do very much for euro clearing to leave London.” [...]
The ECB currently has some shared authority over British clearinghouses through rules known as European Market Infrastructure regulations. The U.K. will no longer be bound by EMIR after Brexit. ECB President Mario Draghi said earlier this month that the central bank should retain its oversight of U.K. clearing, even after Britain leaves.
In the U.S., Commodity Futures Trading Commission Chairman Timothy Massad has spoken against restrictions on the location of clearing, but has sympathized with the EU’s desire to have oversight of clearinghouses in London. Their health is crucial for euro-denominated assets and the entire European economy.