Despite the volatility that would trigger the UK’s departure from the EU, Brexit does not represent an “imminent risk” to financial stability, according to Single Resolution Board President Elke König.
Confusion has taken over the British parliament. Nobody knows how the divorce between the UK and the EU will end. Instability could spread over the City of London and its financial services.
But König, who knows the situation of Europe’s systemic banks inside out expressed her confidence about the level of preparedness of the financial system.
“There will definitely be volatility”, she told reporters on Tuesday (26 March). “Volatility is never pleasant but part of business”.
But she was “convinced” that the UK’s withdrawal from the EU did not represent a “imminent risk to financial stability”.
Following the recommendation of the ECB, the SRB also insisted that those banks that want to continue operating in the EU after Brexit would have to transfer the risky part of their activities to where the supervision will take place on EU-27 territory.
König said that it would not be sufficient for British-based banks just to open a branch across the Channel.
Although “complexity is an impediment” to bank resolution, König ruled out the prospect of new bank structures surging in the aftermath of Brexit to maintain a European passport posing a particular concern.
“We will just have more banks to supervise,” he added.
In order to strengthen the SRB’s toolbox, eurozone member states are finalising the governance of the new €60 billion backstop to resolve ailing banks.
This amount will come on top of the Single Resolution Fund. By 2024, the fund’s firepower will reach 1% of the covered deposits of the banking union (around €60 billion), currently a bit less than half of it.
On Tuesday, König argued in favour of an additional liquidity line in case a bank still faces difficulties, for example, when accessing market finance shortly after the resolution.
She proposed an ECB credit line without a specific limit.
The SRB could issue bonds as collateral to back the loans and absorb first loses in case of problems.
[Edited by Sam Morgan]
