Exclusive foreign banks have higher capital bills according to draft EU plan, Reuters

Author: Huw Jones

LONDON (Reuters) – European Union-based foreign banks may need more capital and liquidity in the revisions of the rules being considered by bloc member states, an EU document has shown.

Brussels officials want to classify more foreign banks as subsidiaries than branches, and that change should improve local balance sheets and be under the direct supervision of the EU. The move would take a large chunk out of lenders who opened branches in the EU after the UK left the bloc.

An EU document prepared for Member States and viewed by Reuters said the adjustments could be “an automatic trigger for subsidization”, or to decide whether ways to limit the discretion of regulators to become subsidiaries.

The European Banking Authority of the bloc (EBA) said in a June 2021 report that by the end of 2020 there were 106 third country branches (TCBs) in 17 member states with a change in the way Member States deal with 510.23 billion euros ($ 569.16 billion). them.

There were 14 branches and 120.5 billion euros more in assets than in the previous year, and the upward trend in the use of branches to enter the EU market was highlighted by Brexit, according to the EBA.

China has 18 branches, followed by Britain 15, Iran 10 and the United States nine. (Chart: European Banking Authority Third Bank Branch Chart, https://fingfx.thomsonreuters.com/gfx/mkt/gkplgjwdkvb/European%20Banking%20Authority%20Graphic%20on%20Third%20Country%20BranchesPN

Currently, EU banking regulators decide on a case-by-case basis whether a foreign branch should become a subsidiary that would be directly supervised. The main regulator of a foreign branch is the home caregiver.

“Requiring an automatic launch for physicalization will alarm companies,” said a bank official.

Regulators are currently examining foreign branches with assets of $ 30 trillion ($ 33.410 billion) or more to see if they are systemic enough to pose risks to financial stability.

They can ask him to restructure the branch or have extra capital if he wants to continue working on the block. (Chart: Chart of the European Banking Authority on the assets of third country branches, https://fingfx.thomsonreuters.com/gfx/mkt/gdpzynqdovw/European%20Banking%20Authority%20Graphic%20on%20Assets%20of%20Country%20 )

APPROPRIATE SCOPE

The toughest decision to force the branch to become a subsidiary has been the last resort, but some member states say the current system is cumbersome.

“The scope of the systemic importance assessment and ultimately the joint decision do not seem to show clear and apparent inconsistencies,” the document says.

Some states also want to lower the asset threshold that leads to a review of whether a branch should become a subsidiary, the document shows.

A combination of lower thresholds and an automatic start-up would have a greater impact on the European Central Bank, which oversees major lenders, and would make it more difficult to prevent branches from becoming subsidiaries.

UK financial firms, now out of the block, can serve EU customers who have not yet applied or marketed in accordance with a practice known as reverse demand.

The document states that Member States want to review the “appropriate framework” for reverse demand and clarify when an activity should be carried out in at least one EU branch.

EU Member States and the European Parliament have jointly agreed on the final adoption of the revisions to the Banking Rules.

The ECB is already conducting a “desk mapping” review to see if the new Brexit sites in London’s banks have enough staff and activity volume to meet their licensing requirements.

British regulators are concerned that if many bankers are forced to move from London to Brexit sites, Britain’s operations will not have enough senior staff.

($ 1 = $ 0.8978)