The Brexit referendum came close as banks and its shareholders’ move in European markets remained unclear. Seemingly, Britain is not supported by the banks, abandoning the European Union. However, as it goes in favor, they must be prepared.
Research firms have seen how banks have responded to the approaching event, as well as how Brexit is likely crucial for London – the largest financial hub. It is where foreign banks are headquartered to run in the European markets.
Jeopardy in Bank
When Britain leaves Europe, it is likely that many US banks running in the EU will lose its headquarters. It was recently reported that Citigroup aims at transferring its retail banking operations in Irish Capital Dublin. Thus, banks will be able to operate with less cost and regulations.
HSCB, one of the largest European banks, plans on switching its headquarters from UK, citing concerns on Brexit. Ahead of the arising uncertainties, Deutsche Bank appears to demand for changes on its strategy.
Amid a low interest rate, and dropping of oil prices, it has sent global banks to struggle. Potential changes to the European market dynamics has led further concerns amongst the executives of the bank.
Subsequently, European Central Bank set the monetary policy unconstrained to activate growth stimulus in European countries. A few of those policies are being applied at the expenses of the earnings of the bank as negative rates were lately introduced.
Hence, a narrowing net interest margin for European banks was recently seen. It is anticipated that US banks might lose its headquarters in London as well as its access to the entire European market, suggesting another set of jeopardy in costs and regulations.
Pier Carlo Padoan, an Italian Finance Minister stated concerns over the Brexit, as the anti-European forces are expected to strengthen upon its vent. Among his concerns, he explained that the Europe might be showing issues of political and economical side.
Furthermore, it appears that the Italian financial system posted weaker, which led by rising concerns over the 360 billion euros in non-performing loans. A fund worth five-billion euro was raised by Italian financial institutions and government in order to support smaller lenders for a bail out in a soaring volatile market as well as investors’ worries.
Mr. Padoan is confident in all the initiatives in resolving the three-year recession, including its recent GDP loss of 10% in Europe’s third largest economy. However, Brexit will be considered as another set of concern for Italian banks involved with existing debts and growth crisis.
Under Brexit’s case, it is likely that banks are expected to face problems in the relocation of networks in Europe. Thus, the operating stability of the banks operating in Europe will struggle without the help of the European Union, considering European and US banks are mostly UK-based. One of the benefits of the license is establishing offices, as well as services in the country are provided without any further requirements.
When a bank, insurance form, or any type of financial institution is based in UK, they are allowed to operate through the EU, which is known as passporting. However, for financial institutions that are UK based, it won’t be possible if Brexit occurs, unless there are special policies that are being performed. Apparently, these banks’ subsidiaries should proceed with re-establishments in other parts of Europe.