Föhrenbergkreis Finanzwirtschaft

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U.K.’s Euro Clearing Business at Risk as ECB Requests More Powers

Posted by hkarner - 25. Juni 2017

With another stupid statement by Mr. Kern. Full Elder (= Vollholler) (hfk)

Date: 24-06-2017
Source: The Wall Street Journal

Brexit raises questions about whether big U.K.-based clearing houses should move elsewhere within the EU

A view of the City of London financial district. London-based clearinghouses clear around 90% of the euro-denominated interest rate swaps of euro area banks, and 40% of their euro-denominated credit default swaps, according to ECB estimates.

FRANKFURT—The European Central Bank lodged a formal request for greater powers to supervise euro-denominated clearing, stepping up a tug of war between European Union authorities and Britain over the future of the lucrative business line after Brexit.

Britain’s departure from the EU has rekindled a debate about whether big U.K.-based clearing houses should decamp within the bloc, given the importance of their activities for the stability of eurozone financial markets.

The ECB said on Friday it had lodged a request with EU authorities for changes to its statute that would allow it to exercise “a clear legal competence in the area of central clearing.”

The move, a year after the Brexit vote, underlines the ECB’s eagerness to supervise a vast and lucrative business centered beyond the eurozone’s borders.

London-based clearinghouses, such as the London Stock Exchange ’s LCH.Clearnet, clear around 90% of the euro-denominated interest rate swaps of euro area banks, and 40% of their euro-denominated credit default swaps, according to ECB estimates.

Those figures “should give you a sense of how relevant these [clearinghouses] are for the stability of the euro,”  Benoît Coeuré, who sits on the ECB’s six-member executive board, said in a speech this week. He argued that Britain’s departure from the EU made it “urgent” to review current supervisory arrangements.

The European Commission, the EU’s executive arm, proposed a plan last week that would force parts of London’s clearing business to relocate within the EU.

Mr. Coeuré welcomed those plans as “a step in the right direction.”

“We certainly need to play a strong role here,” he said. The current regime “relies to a large extent on local supervision, and provides EU authorities with very limited tools for obtaining information and taking action in the event of a crisis.”

The ECB has long pushed for a greater role in overseeing euro-denominated trades. It lost a legal battle over the issue two years ago in the EU’s second-highest court, but Britain’s departure from the EU has lent fresh impetus to its efforts.

The ECB’s proposed amendments to its statutes would allow it “to monitor and address risks associated with central clearing activities that could affect the conduct of monetary policy, the operation of payment systems and the stability of the euro,” the central bank said.

Still, Britain is expected to push back hard during the Brexit negotiations, which kicked off this week in Brussels.

Responding to the EU’s proposals,  Mark Carney, governor of the Bank of England, warned this week against fragmenting Europe’s clearing market.

“Fragmentation is in no one’s economic interest,” Mr. Carney said. “Nor is it necessary for financial stability. Indeed it can damage it.”

But it is unclear how receptive the EU’s 27 other members will be to such arguments.

Speaking on the sidelines of a gathering of EU leaders in Brussels on Friday, Austrian Chancellor Christian Kern argued it was sensible to give the ECB greater powers over clearing given its successful efforts to support the eurozone during the bloc’s recent crisis.

“The ECB has done a great job, an amazing job— Mario Draghi has saved Europe,” Mr. Kern said, referring to the bank’s president. “Therefore, it makes sense to give them more means to do their job.”

 

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