Brexit: The EU banks have reduced their exposure to the Great Britain


by Huw Jones

LONDON (Reuters) – major european banks have reduced their exposure to the Great Britain since the vote in favour of the Brexit last year and worried about the future of cross-border agreements once the United Kingdom left the european Union, said on Friday the european banking Authority (EBA).

The exposure to Great Britain in terms of assets of banks of the other 27 EU countries increased from a little over 1,900 billion euros in June 2016, months of the british referendum, at a little less than 1.600 billion euros in June 2017, says the bank regulator.

Over the same period, their financial commitments have been reduced to a little over 1,300 billion, compared with a little less than 1,700 billion euros.

This decrease reflects a decline in the very net of contracts on derivatives, which could become a source of concern for London, in competition with New York on the financial sector.

In an annual report devoted to risk assessment, the EBA points out that banks are concerned about a jump in the void if Great Britain, the first european financial market, leaving the EU free trade agreement.

“The negotiations of Brexit continue to be a source of political risk for the european financial market, a scenario without the agreement that may cause serious disruptions to the EU banking sector,” says ABE.

The regulator notes that one of the main reasons of concern for banks relates to the sustainability of the financial contracts or the account to be taken of the commitments made, after the exit of Britain from the EU effective.

Consumers and companies in the 27 member States of the EU could be facing cancellations, amendments or renegotiations of contracts, a lower degree of legal protection and financial loss, emphasizes the EBA.


“It is important for banks, as consumers and the authorities, consider appropriate actions to respond to those risks,” she said.

Britain hoped that the discussions scheduled for next month to unblock the negotiations on the Brexit would lead to the transitional arrangements and to draft new financial arrangements.

The EU banks may also no longer be able to compensate to London the operations on derivatives, which would prevent firms and households access to financial services in Great Britain.

Deutsche Börse (DE:DB1Gn) has launched a charm offensive aimed to try to draw in Frankfurt the clearing operations currently performed in London.

“An interruption of financial flows (…) associated with a distrust of the financial actors could dry up the market liquidity (…), and affect the stability of the banking system of the EU,” continues to ABE.

This report of the EBA confirms the arguments of the City of London and other players in the finance industry in Europe, who advocate an agreement, albeit temporary, between London and the EU.

The supervisory authority also notes that the european banks continue to strengthen their defenses in the face of potential shocks and disperse gradually from their bad debts, the amount of which amounted to 893 billion euros.

Their profitability has improved and the average yield on equity amounted to 7%, its highest level since 2014, but still remains lower than the cost of capital, ” adds ABE. It is not clear if this low performance is related to the current market conditions or to the structure of the sector.

(Catherine Mallebay-Vacqueur for French service, edited by Bertrand Boucey)

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