This isn’t exactly and precisely what the Bank of England says here but it is precisely and exactly what the Bank of England means. All this shouting over Brexit, The City, passporting for finance firms and so on. The real question here is, well, what is remnant European Union – or more specifically, all the companies and people in it – going to do when cut off from their major supplier of wholesale financial services?
That is, “Nice economy you’ve got there, shame if something happens to it, isn’t it?”
And this is what the real problem is here too. We all know that – OK, all should know that, only fools don’t – that financial services exist for a reason. They keep the economy ticking along. You know, finance it. It’s entirely true that not being able to sell financial services to Europeans will make some people in London sad. But it’s much more important to all those people in r-EU who won’t get their businesses and economies financed, isn’t it?
The Bank of England has fired shots at Brussels in an increasingly acrimonious dispute over preparations by the financial sector for Brexit.
The central bank said on Wednesday that the European Commission was standing in the way of financial stability across Europe in the event of the UK leaving the regional bloc without a transition period next March.
Noting that progress had been made on the UK side with a promise of legislation to allow European financial services companies to serve British customers after a hard Brexit, it warned that no such progress had been made on the European side.
We might even mutter something along the lines that they’re not taking this seriously:
“The UK government has committed to legislate, if necessary, to put in place temporary permissions and recognition regimes – this will allow banks [and] insurers to continue their activities in the UK for a time-limited period after the UK has left the EU, even if there is no implementation period, thus mitigating a number of risks of disruption to UK customers.”
But it added: “As yet the EU has not indicated a solution analogous to a temporary permissions regime. European Economic Area customers remain reliant on UK-based financial companies being able to overcome any future barriers to cross service provision.
“The Financial Policy Committee judges that material risks remain.”
An example, perhaps not the best but one all the same. A large European company runs a commercial paper scheme. Short term borrowings, possibly billions of euro and or pounds at any one time. Borrowing for 7 to 30 days perhaps. Brexit day, they can no longer use London, they’ve got to pay back all that money and can’t borrow it again.
Or a eurobond – contrary to the name they’re usually based in London – comes up to be rolled over. Oh, we can’t do that, sorry.
It is actually possible that one or more major European company could go bust as a result of non-access to The City. And that’s a problem the r-EU has to solve, to allow them said access.
As we’ve pointed out before:
Those asset managers have worked it out. The consumer gains in a transaction. This must be so, obviously, otherwise they’d not hand over good money to make a transaction. But in financial services, well, they get financial services, don’t they? And so which is the more important thing, who loses more, if the EU cuts off the City. Is it the City, the producer? Or is it the businesses and peoples of Europe who are now denied access to the financial services they quite obviously desire?
Now run it again with the City being interested in but not dependent upon European business. And European business gaining some 70 to 80 % of its wholesale financial services from the City.
We’re worried about losing business more than they’re worried about losing finance, are we?
The answer being that the bureaucrats are much more worried about their bruised amour propre. No one’s really asked the businesses yet. Which is going to make it interesting, isn’t it?