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Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

onthemove
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Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370773

Postby onthemove » December 29th, 2020, 11:42 am

Possible explanation for the banks being substantially down today, while the rest of the market is showing good gains...

https://ec.europa.eu/info/sites/info/fi ... _final.pdf
"...the Agreement does not cover any decisions
relating to equivalences for financial services.
(...).
These are and will remain unilateral
decisions of the EU
and are not subject to negotiation"


(bold is as per original EU document)

The thing that stand out the most to me, and not only because it is highlighted in the document, is that the EU are making it absolutely clear that they will make any decisions related to equivalence for financial services entirely unilaterally, and without negotiation with the UK.

In other words, the UK will have no say at all in any such potential rules.

Which is quite staggering.
Clearly the EU don't feel that the UK has anything to offer in return which the UK could use as a bargaining chip.

And clearly nor are the EU concerned about reciprocity in this area.

I can't help feel that this is going to deal a substantial blow to London's dominance in the financial markets.

Sure it's true that much of London's trade is with the rest of the world, and not just the EU.

But clearly the EU is a large market in itself, and they would love it if they could build up their own strong financial centres. I believe France and Germany have already made it very clear they will welcome UK financial services moving into their operations into those respective countries.

So I can't see the EU now giving the UK banks and financial institutions any more access to the EU market than is strictly needed to cover short term needs while the EU ramps up financial services on their side.

Some have suggested that no problem, all UK banks need to do is setup subsidiaries in the EU.

True.

But with the EU market being bigger, isn't this going to result in the primary operations ultimately switching to the EU, with UK operations ending up the subsidiary?

Arguably, perhaps from a shareholder perspective, we (shareholders) will still be the beneficial owners whether the companies are operating from the UK or subsidiaries in the EU.

But if it's as simple as that, why the share price falls today for banks?

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370791

Postby MaraMan » December 29th, 2020, 12:24 pm

onthemove wrote:
Some have suggested that no problem, all UK banks need to do is setup subsidiaries in the EU.



I am sure any competent UK financial services company has done this long ago, I know the ones I worked for did. Same as they always have in multiple overseas jurisdictions for operating and licensing reasons. I don't know the answer to the banks share price question, other than they are very much out of fashion at the moment and it doesn't take much to scare the horses.

MM

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370801

Postby johnhemming » December 29th, 2020, 12:47 pm

Any management who have not already set up subsidiaries should be fired for incompetence.

I think the banks are a touch off because of the threat of negative interest rates on NIM as a result of the continuing government paranoia and incompetence in government science relating to covid.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370806

Postby dealtn » December 29th, 2020, 12:54 pm

onthemove wrote:
Clearly the EU don't feel that the UK has anything to offer in return which the UK could use as a bargaining chip.

And clearly nor are the EU concerned about reciprocity in this area.

I can't help feel that this is going to deal a substantial blow to London's dominance in the financial markets.



The 27 countries have large deficits and debts that are ongoing and require financing. It will be an interesting experiment should they choose not to use London as part of their efforts to sell bonds.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370810

Postby scrumpyjack » December 29th, 2020, 1:10 pm

johnhemming wrote:Any management who have not already set up subsidiaries should be fired for incompetence.

I think the banks are a touch off because of the threat of negative interest rates on NIM as a result of the continuing government paranoia and incompetence in government science relating to covid.


Well history has shown that the management of UK banks are experts in incompetence on a quite incredible scale! (eg PPI!)

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370813

Postby johnhemming » December 29th, 2020, 1:17 pm

dealtn wrote:The 27 countries have large deficits and debts that are ongoing and require financing. It will be an interesting experiment should they choose not to use London as part of their efforts to sell bonds.


We will see, but I would not be surprised if they printed some of the debt.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370817

Postby dealtn » December 29th, 2020, 1:31 pm

johnhemming wrote:
dealtn wrote:The 27 countries have large deficits and debts that are ongoing and require financing. It will be an interesting experiment should they choose not to use London as part of their efforts to sell bonds.


We will see, but I would not be surprised if they printed some of the debt.


And the portion not printed (do you literally mean print new bank notes - and if so how does that transmission mechanism work to pay off or finance the debt), will be arranged, sold, and bought exclusively by European banks and financial institutions outside of London?

As I say that will be an interesting real life experiment.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370820

Postby johnhemming » December 29th, 2020, 1:35 pm

Normally I mean create new money supply. That is what the UK has done. It is normally book entries in the central banks electronic ledgers.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370822

Postby dealtn » December 29th, 2020, 1:38 pm

scrumpyjack wrote:
johnhemming wrote:Any management who have not already set up subsidiaries should be fired for incompetence.

I think the banks are a touch off because of the threat of negative interest rates on NIM as a result of the continuing government paranoia and incompetence in government science relating to covid.


Well history has shown that the management of UK banks are experts in incompetence on a quite incredible scale! (eg PPI!)


And history has also shown banks have been expert in developing and maintaining the premier infrastructure and location for much of the world's banking and finance needs, as well as insurance and investment and wealth management and FX and Bond Issuance etc. over more than a few centuries.

The same management has provided free banking for the vast majority of its retail customers over many decades, something not achieved by most other countries.

But if it's more fashionable to knock the UK and the industry that has provided more wealth and tax revenues than most others who am I to stop you? Maybe as a past participant in those institutions and industry my view isn't relevant, unfashionable that it is.

(Trust me I have seen much evidence of incompetence in the industry, as no doubt others have in theirs, but I recognise more than equal brilliance over my career too.)

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370824

Postby dealtn » December 29th, 2020, 1:56 pm

johnhemming wrote:Normally I mean create new money supply. That is what the UK has done. It is normally book entries in the central banks electronic ledgers.


And the offsetting entry to that entry on the Central bank's balance sheet is? Is it not the case that there is a compensating entry at a Commercial Bank, which in turn requires an asset? Perhaps its a piece of paper, let's call it a "Government Bond" issued by the Government to complete the circle.

Or maybe you are thinking of how the Bank of England operates QE by purchasing already issued bonds in exchange for settlement at existing Gilt holders accounts at commercial banks.

So who will be doing the distribution and selling of these pieces of paper. Who will be the buyers, or sellers, and who will be their intermediaries that facilitate this (and the associated settlement infrastructure)?

Once again it will be an interesting real life experiment should the 27 sovereign central banks (and their counterparties) across the EU choose not to use the services of the City of London in similar operations.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370826

Postby scrumpyjack » December 29th, 2020, 1:57 pm

I'm not sure this debate will get us anywhere and any industry will have some very competent people but a look at the share price chart of any UK bank over the last 15 years could not give confidence to anyone that they were competently managed. No doubt the likes of Fred Goodwin would argue it was all down to factors 'outside management's control', but one of the key factors in banking must be the concept of 'prudence' and she was sadly lacking throughout the industry.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370829

Postby dealtn » December 29th, 2020, 2:09 pm

scrumpyjack wrote:I'm not sure this debate will get us anywhere and any industry will have some very competent people but a look at the share price chart of any UK bank over the last 15 years could not give confidence to anyone that they were competently managed. No doubt the likes of Fred Goodwin would argue it was all down to factors 'outside management's control', but one of the key factors in banking must be the concept of 'prudence' and she was sadly lacking throughout the industry.


The 5 largest EU banks are BNP, Credit Agricole, Banco Santander, Societe Generale and Deutsche Bank.

Now if we did an "interesting" experiment, seeing as this thread is concerning the financial systems of the likes of banks in the UK and the EU, and we produced share price graphs as comparisons over that time frame, are you confident you could differentiate unlabelled graphs of those 5 from the largest UK institutions?

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370832

Postby johnhemming » December 29th, 2020, 2:23 pm

dealtn wrote:Or maybe you are thinking of how the Bank of England operates QE by purchasing already issued bonds in exchange for settlement at existing Gilt holders accounts at commercial banks.

I am thinking of QE. I am not inclined to research exactly how the EU does this, but lots of governments are going for QE type things at the moment.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370837

Postby dealtn » December 29th, 2020, 2:34 pm

johnhemming wrote:
dealtn wrote:Or maybe you are thinking of how the Bank of England operates QE by purchasing already issued bonds in exchange for settlement at existing Gilt holders accounts at commercial banks.

I am thinking of QE. I am not inclined to research exactly how the EU does this, but lots of governments are going for QE type things at the moment.


Agreed, lots of Governments are doing this or similar, I am not disputing that.

The implication was that European Governments would be trying to continue as before, but not use London, UK Banks, UK counterparties etc., here is the direct quote.

Clearly the EU don't feel that the UK has anything to offer in return which the UK could use as a bargaining chip.


Once again that will be an interesting experiment to run in real life.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370838

Postby johnhemming » December 29th, 2020, 2:39 pm

dealtn wrote:Once again that will be an interesting experiment to run in real life.

We will soon see. My feeling is that this is mainly an issue for the treasury (shortage of tax receipts and employment) rather than the corporate entities which can simply set up subsidiaries if needs be.

There is a longer term issue in that people cannot set up a business in the UK to trade with Europe. However, I expect Dublin to do quite well out of this.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#370874

Postby GoSeigen » December 29th, 2020, 4:19 pm

scrumpyjack wrote:I'm not sure this debate will get us anywhere and any industry will have some very competent people but a look at the share price chart of any UK bank over the last 15 years could not give confidence to anyone that they were competently managed. No doubt the likes of Fred Goodwin would argue it was all down to factors 'outside management's control', but one of the key factors in banking must be the concept of 'prudence' and she was sadly lacking throughout the industry.


Bank share prices over the past 15 years have practically FA to do with bank management whereas they have a lot to do with the attitude of shareholders and past shareholders like scrumpyjack. Bank management doesn't set bank share prices, market participants do.


GS

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#372655

Postby UncleEbenezer » January 3rd, 2021, 1:18 pm

johnhemming wrote:Any management who have not already set up subsidiaries should be fired for incompetence.

You mean the management of the future innovative startup that's going to disrupt those complacent incumbents?

What Thatcher's single market did above all else wasn't to protect established incumbents, it was to remove barriers to entry for newcomers!

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#374027

Postby hiriskpaul » January 6th, 2021, 6:54 pm

Most large banks in the City are foreign owned and already had significant EU operations. It is likely that the EU subsidiaries will grow over time at the expense of UK subsidiaries. That process started some time ago. Equivalence matters little for Lloyds or even NatWest these days though. Barclays more so.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#374038

Postby scrumpyjack » January 6th, 2021, 7:30 pm

Sadly I think it will turn out to be a lot easier for the EU countries to build up viable financial services than it will be for the UK to build up the sort of successful manufacturing business that Germany has. The City has a very inflated view of its own brilliance.

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Re: Equivalence for Financial Services - unilateral decisions of the EU, not subject to negotiation

#374253

Postby dealtn » January 7th, 2021, 11:23 am

scrumpyjack wrote: The City has a very inflated view of its own brilliance.


Not immediately obvious from the share prices of banks though.


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