The economic consequences of Brexit (Vol 2)

[stongle]

skahigh said:

Thanks, I thought that might be the case but, it wasn't clearly explained in the article.

I'm still not sure why the asset/liabilities of commercial banks end up on the balance sheets of the central banks under this system though.

This seems to suggest that in the Euro zone commercial banks have to make transactions via their central bank which, would explain it and fill in the bit I was missing.

I assume UK commercial banks settle their transactions directly rather than via the Bank of England?

In which case, when a Euro zone commercial bank makes a transaction with a UK commercial bank, do they still go via their central bank or do they go direct?

Target2 is only the pipework, its the liquidity and capital rules around creation of leverage (collateralised lending) that are being eroded by EC and ECB action (for political purposes).

I'm going to use brevity here to explain leverage creation in the EU (which effectively QE and -'ve rates are designed to do). There are lots of other effects - LTROs etc but the problem is credit transfer between North and South Europe (Or Germany creating leverage so Southern can buy cars and expensive fridges) so collaterilised lending is the easiest way to explain it AND how the EU is gaming the system or can kicking.

That article is very poor on the creation of leverage. The primary limiting factor of bank leverage is haircut AND THEN capital control. Anyway. You have to understand that banks themselves are the main ON/OFF ramp into the economy for the Central banks (Monetary Policy). As the ECB is effectively paying people to take money (or create Assets in the ECB balance sheet); the banks are daily depositing OR borrowing Central Banks funds to balance the books (they can do this in the wholesale market if they wish). Most of the lending between banks AND Central banks is done on a collaterilised basis. So when say Deutsche Bank lends to a Italian Bank or Corporate; its receiving Bonds or other forms of Collateral. At the point of the collateral is where the (bad) Credit build up begins.

1. The collateral being received could be impaired or in default, or the person issuing the debt may not be in the financial health they claim. Technically the (EU) banks should be taking greater Capital Provisioning against these loans BUT the EC is kicking that can out the park (it already has a Levearge Ratio requirement 60% lower than the US) - its estimated that banks would need to increase Tier 1 Capital by 300% in the EU to cover Loan Loss Provisions under accounting standard IFRs9 (something that UK banks are starting to adhere too). If say Deutsche lent 1bn EUR Vs Greek Shipping Loans or Bonds, its money could be gone (if the C/P defaults as Greek Shipping firms are prone to do - at our old firm we ended up physically owning ferries as the companies had blown up) and the collateral is worthless (additional financial trickery will be involved by buying CDS and that has inbuilt default / recovery rate assumptions - but that's another load of problems). If say you've then got a balance sheet with several trillion of loans to peripheral banks (whom in turn are lending to shaky business), contagion starts to become a problem.

2. In order to "evidently" make banks safer, the EC come up with the BRRD (Bank Reconciliation and Recovery Directive). Part of this and MREL (Minimum Requirement for Eligible Liabilities) bails bond holders into the Equity Waterfall of banks (bail-in). Lowering debt in the recovery waterfall attacks the inbuilt recovery rate assumption of CDS (so technically recovery rate is more like 30 than 40%). This is pretty bad for retail clients. in Italy to get Mortgages you are sold bank debt (so pensioner bond holders could loose a lot). So these bonds exist, but they are being onward lent to raise funds (create leverage the funds borrowed are then re-invested in more assets). This rehypothecation and elongation of collateral chain makes it very difficult to know whom is exposed to whom (again contagion effect from South to Northern Europe).

3. Regulation MAKES banks support public sector debt bubbles. Under the BASEL accords banks are required to hold liquidity and capital buffers in cash or near cash instruments. Near Cash instruments are generally regarded as Sovereign debt (Government bonds). Logic dictates that the healthier the country, the better the credit rating of the country and whose debt you'd want to hold (so you'd want to hold Bunds over BTPs). Not so on the ECB system, they rank ALL Eurozone government debt as pari-passu for liquidity scoring (except Greece). Ranking Peripheral or even eastern European debt the same as Bunds is a madness. Given that local banks tend to support the local Governments you get Italian Banks, loaded with Italian Govt Debt (backing their balance sheets), borrowing money from German Banks Backed by German Govt Debt (by the magic of Target2) - but given them less credit worthy collateral (so if Italy goes bad the Credit losses ripple out).

Of course this only happens in a default scenario; but without tackling the underlying issues in the EU the ECB and the EC is walking towards oblivion. Even without a default, the capital protection required by the banks should be increasing as the risks are growing. Many if not most EU banks need preventative recapitalisation. If the banking system fails, everything goes. Look at what happened in Greece with the bank runs and people unable to get cash. The Cypriot banks etc; these are serious events both the EC and the ECB are failing to deal with. Its beyond full retard, its potato. The ECB, actual whole EU balance sheet is starting to look akin to Lehman Brothers Special Financing in 2008.

Slasher and Mrttt can talk all day long about passporting (so I respectfully disagree) but no sane US bank is going into the EU in size until these issues get fixed. In fact there is a growing bifurcation between US rules and EU/FSB - US Banks cannot compete on price as the leverage floor in Europe is 3% and in the US its >5% (so the theoretical break even on balance sheet cost is EU Bank 38bps US bank 63bps, the US banks would have to charge more for a product). Even BRRD is incompatible with US Holding Co rules and the Vickers Report.

Edited by stongle on Wednesday 22 March 12:22

Edited by stongle on Wednesday 22 March 12:26

Edited by stongle on Wednesday 22 March 12:28

[Fastdruid]

Mrr T said:

skahigh said:

Digga said:

skahigh said:

This is the bit I don't understand.

From what I can tell Britain doesn't use the TARGET2 system (because it's not in the Euro?) so, how is the settlement made? Surely there is still an asset created on the German banks books and a liability on the UK banks books?

Why is Britain's trade more important to Germany than the Euro zone nations? Simply because of the relative strength and vulnerability of our economies?

It's because we're not Target 2 and running a Ponzi bank system that the liabilities and assets of UK trade are so much safer for Germany and do not create a toxic and irreversible entry on the Bundesbank's balance sheet.

I'm sure I'm missing something about how TARGET2 works.

If a money transfer is made between the balance sheets of two commercial banks, why does that transfer arrive on the balance sheets of the central banks? Because the central bank underwrites the debt? Because that is how TARGET2 is designed to work?

Are you saying there is no build up of debt between the central banks of Germany and the UK because the trades between our countries are actually physically settled? Or because the asset/liability is held with the commercial banks themselves?

Sorry, I'm not trying to be difficult, I just don't feel this has been explained very well.

Unfortunately the blogger has mixed up two different process.

Let’s deal with payments and target 2.

Most people are unaware all payments between banks settle via the relevant CB. So in the UK if you bank with Barclays and I with Nat West and you pay me £10 via your web account. The effect is actually that Barclays Bank account with the BOE will be overdrawn by £10 and Nat West account with the BOE will have a balance of £10. For ease the payments are not individually process but batched but the effect is the same.

This process, called Central Bank Money, is essential to avoid systemic risk.

Bank can run overdrafts with the CB, these must be collateralised, but are normally cleared each day by the bank borrowing or lending money .

The same happens in the EU. If an Italian buys something from a German then The Italians bank will create an overdraft with the Italian CB and the Germans bank will create a deposit in the German CB. These are all linked by the target 2 system. However, the overdraft and deposit are short term and will be cleared that day by the banks other borrowing and lending.

Not quite. Yes that is how it works for small transfers where the banks can afford it, the issue is when they *can't* without re-financing.

See the end of page 6 onwards here: http://www.karlwhelan.com/Papers/T2Paper-March2013...

[Digga]

stongle said:

Target2 is only the pipework...

Cracking post. Thank you.

[Sway]

paul789 said:

Sway said:

///ajd said:

If some Mini production migrates to the EU, it is quite possible it will be genuinely due to brexit.

That will be st result.

You can't make excuses or roll such news in glitter. It'll still be a turd-like outcome.

Want to stop that happening?

I'll tell you what, I'll make a similar wager that I did another poster who refused until I shifted the odds in his favour - £500 that the Mini plant in Oxford remains at full capacity or expands over the next three years, barring major non-Brexit related financial crisis (such as the Euro stting a brick or Trump fking up the dollar).

If they lose staff, or drop production, you name the charity of choice for my deposit. If I win, the RNLI gets £500 of your cash.

Up for it? Or like the other poster, is the chance of your doomaggedon less than fifty/fifty?

I could be up for a wager - say £500 too. One based around GDP, unemployment levels, inflation, interest rates or some other macro measure of the health of the uk economy. Suggest some details...

It's a bet I *want* to lose (remainer, now cheering on the breixiteers), but an interesting exercise. If I win, well at least a charity would benefit - I'd go for the MS society.

I'd struggle to justify a wager on a macro measure - purely for the virtual impossibility of defining which of the multitude of influencing factors has driven the result. Too easy to argue either way is or isn't the result of Brexit and I'm not a fan of wagers that can lead to conflict.

Hence why the two offers I've made are on singular discreet measures.

Appreciate it though, and the sentiment of wishing your current opinion is wrong.

[Carl_Manchester]

Did this one fly under the radar? I was surprised. Positive news and big thanks to the Chinese!

http://www.bbc.co.uk/news/uk-england-coventry-warw...

[Mrr T]

Fastdruid said:

Mrr T said:

skahigh said:

Digga said:

skahigh said:

This is the bit I don't understand.

From what I can tell Britain doesn't use the TARGET2 system (because it's not in the Euro?) so, how is the settlement made? Surely there is still an asset created on the German banks books and a liability on the UK banks books?

Why is Britain's trade more important to Germany than the Euro zone nations? Simply because of the relative strength and vulnerability of our economies?

It's because we're not Target 2 and running a Ponzi bank system that the liabilities and assets of UK trade are so much safer for Germany and do not create a toxic and irreversible entry on the Bundesbank's balance sheet.

I'm sure I'm missing something about how TARGET2 works.

If a money transfer is made between the balance sheets of two commercial banks, why does that transfer arrive on the balance sheets of the central banks? Because the central bank underwrites the debt? Because that is how TARGET2 is designed to work?

Are you saying there is no build up of debt between the central banks of Germany and the UK because the trades between our countries are actually physically settled? Or because the asset/liability is held with the commercial banks themselves?

Sorry, I'm not trying to be difficult, I just don't feel this has been explained very well.

Unfortunately the blogger has mixed up two different process.

Let’s deal with payments and target 2.

Most people are unaware all payments between banks settle via the relevant CB. So in the UK if you bank with Barclays and I with Nat West and you pay me £10 via your web account. The effect is actually that Barclays Bank account with the BOE will be overdrawn by £10 and Nat West account with the BOE will have a balance of £10. For ease the payments are not individually process but batched but the effect is the same.

This process, called Central Bank Money, is essential to avoid systemic risk.

Bank can run overdrafts with the CB, these must be collateralised, but are normally cleared each day by the bank borrowing or lending money .

The same happens in the EU. If an Italian buys something from a German then The Italians bank will create an overdraft with the Italian CB and the Germans bank will create a deposit in the German CB. These are all linked by the target 2 system. However, the overdraft and deposit are short term and will be cleared that day by the banks other borrowing and lending.

Not quite. Yes that is how it works for small transfers where the banks can afford it, the issue is when they *can't* without re-financing.

See the end of page 6 onwards here: http://www.karlwhelan.com/Papers/T2Paper-March2013...

Thanks for the link. I stand corrected. I had no idea there was no requirement to settle target 2 balances.

[Digga]

Carl_Manchester said:

Did this one fly under the radar? I was surprised. Positive news and big thanks to the Chinese!

http://www.bbc.co.uk/news/uk-england-coventry-warw...

I knew this was going on because a mate of mine was a chassis engineer at Toyota, Derby for years joined these guys a few months back. As you say, it's great news and, combined with his previous employers expansion and the ongoing investment by JLR in the region, really does point the way to the revival in the West Midlands automotive sector.

If other stories reported on this thread, about tier suppliers also investing in the UK are taken into account, the future really is reassuring.

[London424]

Digga said:

Carl_Manchester said:

Did this one fly under the radar? I was surprised. Positive news and big thanks to the Chinese!

http://www.bbc.co.uk/news/uk-england-coventry-warw...

I knew this was going on because a mate of mine was a chassis engineer at Toyota, Derby for years joined these guys a few months back. As you say, it's great news and, combined with his previous employers expansion and the ongoing investment by JLR in the region, really does point the way to the revival in the West Midlands automotive sector.

If other stories reported on this thread, about tier suppliers also investing in the UK are taken into account, the future really is reassuring.

1. Despitebrexit

[skahigh]

stongle said:

Target2 is only the pipework, its the liquidity and capital rules around creation of leverage (collateralised lending) that are being eroded by EC and ECB action (for political purposes).

I'm going to use brevity here to explain leverage creation in the EU (which effectively QE and -'ve rates are designed to do). There are lots of other effects - LTROs etc but the problem is credit transfer between North and South Europe (Or Germany creating leverage so Southern can buy cars and expensive fridges) so collaterilised lending is the easiest way to explain it AND how the EU is gaming the system or can kicking.

That article is very poor on the creation of leverage. The primary limiting factor of bank leverage is haircut AND THEN capital control. Anyway. You have to understand that banks themselves are the main ON/OFF ramp into the economy for the Central banks (Monetary Policy). As the ECB is effectively paying people to take money (or create Assets in the ECB balance sheet); the banks are daily depositing OR borrowing Central Banks funds to balance the books (they can do this in the wholesale market if they wish). Most of the lending between banks AND Central banks is done on a collaterilised basis. So when say Deutsche Bank lends to a Italian Bank or Corporate; its receiving Bonds or other forms of Collateral. At the point of the collateral is where the (bad) Credit build up begins.

1. The collateral being received could be impaired or in default, or the person issuing the debt may not be in the financial health they claim. Technically the (EU) banks should be taking greater Capital Provisioning against these loans BUT the EC is kicking that can out the park (it already has a Levearge Ratio requirement 60% lower than the US) - its estimated that banks would need to increase Tier 1 Capital by 300% in the EU to cover Loan Loss Provisions under accounting standard IFRs9 (something that UK banks are starting to adhere too). If say Deutsche lent 1bn EUR Vs Greek Shipping Loans or Bonds, its money could be gone (if the C/P defaults as Greek Shipping firms are prone to do - at our old firm we ended up physically owning ferries as the companies had blown up) and the collateral is worthless (additional financial trickery will be involved by buying CDS and that has inbuilt default / recovery rate assumptions - but that's another load of problems). If say you've then got a balance sheet with several trillion of loans to peripheral banks (whom in turn are lending to shaky business), contagion starts to become a problem.

2. In order to "evidently" make banks safer, the EC come up with the BRRD (Bank Reconciliation and Recovery Directive). Part of this and MREL (Minimum Requirement for Eligible Liabilities) bails bond holders into the Equity Waterfall of banks (bail-in). Lowering debt in the recovery waterfall attacks the inbuilt recovery rate assumption of CDS (so technically recovery rate is more like 30 than 40%). This is pretty bad for retail clients. in Italy to get Mortgages you are sold bank debt (so pensioner bond holders could loose a lot). So these bonds exist, but they are being onward lent to raise funds (create leverage the funds borrowed are then re-invested in more assets). This rehypothecation and elongation of collateral chain makes it very difficult to know whom is exposed to whom (again contagion effect from South to Northern Europe).

3. Regulation MAKES banks support public sector debt bubbles. Under the BASEL accords banks are required to hold liquidity and capital buffers in cash or near cash instruments. Near Cash instruments are generally regarded as Sovereign debt (Government bonds). Logic dictates that the healthier the country, the better the credit rating of the country and whose debt you'd want to hold (so you'd want to hold Bunds over BTPs). Not so on the ECB system, they rank ALL Eurozone government debt as pari-passu for liquidity scoring (except Greece). Ranking Peripheral or even eastern European debt the same as Bunds is a madness. Given that local banks tend to support the local Governments you get Italian Banks, loaded with Italian Govt Debt (backing their balance sheets), borrowing money from German Banks Backed by German Govt Debt (by the magic of Target2) - but given them less credit worthy collateral (so if Italy goes bad the Credit losses ripple out).

Of course this only happens in a default scenario; but without tackling the underlying issues in the EU the ECB and the EC is walking towards oblivion. Even without a default, the capital protection required by the banks should be increasing as the risks are growing. Many if not most EU banks need preventative recapitalisation. If the banking system fails, everything goes. Look at what happened in Greece with the bank runs and people unable to get cash. The Cypriot banks etc; these are serious events both the EC and the ECB are failing to deal with. Its beyond full retard, its potato. The ECB, actual whole EU balance sheet is starting to look akin to Lehman Brothers Special Financing in 2008.

Slasher and Mrttt can talk all day long about passporting (so I respectfully disagree) but no sane US bank is going into the EU in size until these issues get fixed. In fact there is a growing bifurcation between US rules and EU/FSB - US Banks cannot compete on price as the leverage floor in Europe is 3% and in the US its >5% (so the theoretical break even on balance sheet cost is EU Bank 38bps US bank 63bps, the US banks would have to charge more for a product). Even BRRD is incompatible with US Holding Co rules and the Vickers Report.

Edited by stongle on Wednesday 22 March 12:22

Edited by stongle on Wednesday 22 March 12:26

Edited by stongle on Wednesday 22 March 12:28

Thank you for taking the time to post this, I will need to re-read it a few times to digest it I think. I'm afraid much of this goes over my head as I have little knowledge of how financial markets operate.

[Sway]

Mrr T said:

Thanks for the link. I stand corrected. I had no idea there was no requirement to settle target 2 balances.

What's your view on that lack of requirement? If I remember correctly you have/had something to do with CB reconciliation for a bank?

Personally, I find that fking terrifying, and frankly grossly irresponsible in light of the guaranteed build up of systemic risk it creates - seemingly purely so the German Chancellor can hide some of the fundamental flaws in the imbalances of the Eurozone economies.

[FiF]

London424 said:

Digga said:

Carl_Manchester said:

Did this one fly under the radar? I was surprised. Positive news and big thanks to the Chinese!

http://www.bbc.co.uk/news/uk-england-coventry-warw...

I knew this was going on because a mate of mine was a chassis engineer at Toyota, Derby for years joined these guys a few months back. As you say, it's great news and, combined with his previous employers expansion and the ongoing investment by JLR in the region, really does point the way to the revival in the West Midlands automotive sector.

If other stories reported on this thread, about tier suppliers also investing in the UK are taken into account, the future really is reassuring.

1. Despitebrexit

On a decision made early in 2015.

[Mrr T]

Sway said:

Mrr T said:

Thanks for the link. I stand corrected. I had no idea there was no requirement to settle target 2 balances.

What's your view on that lack of requirement? If I remember correctly you have/had something to do with CB reconciliation for a bank?

Personally, I find that fking terrifying, and frankly grossly irresponsible in light of the guaranteed build up of systemic risk it creates - seemingly purely so the German Chancellor can hide some of the fundamental flaws in the imbalances of the Eurozone economies.

F@@king amazed. My CBM experience was UK so assumed target 2 operated in the same way. Even today BOE is pushing term DBV to reduce line usage.

[Sway]

Mrr T said:

Sway said:

Mrr T said:

Thanks for the link. I stand corrected. I had no idea there was no requirement to settle target 2 balances.

What's your view on that lack of requirement? If I remember correctly you have/had something to do with CB reconciliation for a bank?

Personally, I find that fking terrifying, and frankly grossly irresponsible in light of the guaranteed build up of systemic risk it creates - seemingly purely so the German Chancellor can hide some of the fundamental flaws in the imbalances of the Eurozone economies.

F@@king amazed. My CBM experience was UK so assumed target 2 operated in the same way. Even today BOE is pushing term DBV to reduce line usage.

Does it help to shift your opinion on the likelihood of achieving FS passporting?

Inability to absorb shocks due to high levels of systemic risk.

Massive percentages of business funding coming from London.

Inelastic ability to shift the talent pool and supporting structures.

All seem to add up to it being really mutually beneficial to achieve a passporting deal...

[amusingduck]

Digga said:

stongle said:

Target2 is only the pipework...

Cracking post. Thank you.

+1

Very interesting read, thanks.

[Mrr T]

Sway said:

Mrr T said:

Sway said:

Mrr T said:

Thanks for the link. I stand corrected. I had no idea there was no requirement to settle target 2 balances.

What's your view on that lack of requirement? If I remember correctly you have/had something to do with CB reconciliation for a bank?

Personally, I find that fking terrifying, and frankly grossly irresponsible in light of the guaranteed build up of systemic risk it creates - seemingly purely so the German Chancellor can hide some of the fundamental flaws in the imbalances of the Eurozone economies.

F@@king amazed. My CBM experience was UK so assumed target 2 operated in the same way. Even today BOE is pushing term DBV to reduce line usage.

Sway said:

Does it help to shift your opinion on the likelihood of achieving FS passporting?

No.

Sway said:

Inability to absorb shocks due to high levels of systemic risk.

I have said all along the worst deal is no deal. This applies to both the UK and the EU.

Sway said:

Massive percentages of business funding coming from London.

Little funding comes from London just the people who arrange it.

Sway said:

Inelastic ability to shift the talent pool and supporting structures.

If it’s about a job or no job the people will move.

Sway said:

All seem to add up to it being really mutually beneficial to achieve a passporting deal.

The technical issue with that statement is that FS regulations have been implemented by Directive not Regulation. So if we leave the SM a deal on FS passporting requires UK/EU agreement, a new Directive, and the Directive to be implemented in 27 countries. It can happen so long as we have ¾ years.

[wc98]

stongle said:

Target2 is only the pipework, its the liquidity and capital rules around creation of leverage (collateralised lending) that are being eroded by EC and ECB action (for political purposes).

The ECB, actual whole EU balance sheet is starting to look akin to Lehman Brothers Special Financing in 2008.

Edited by stongle on Wednesday 22 March 12:22

Edited by stongle on Wednesday 22 March 12:26

Edited by stongle on Wednesday 22 March 12:28

another thanks for the post from me. i am so glad you added the lehman brothers analogy as being illiterate in all things financial that was the opinion i was forming as i was nearing the end of your post, but thought it might be too simplistic (i usually am).

[stongle]

wc98 said:

another thanks for the post from me. i am so glad you added the lehman brothers analogy as being illiterate in all things financial that was the opinion i was forming as i was nearing the end of your post, but thought it might be too simplistic (i usually am).

No probs, and to the others whom said thanks. I used a lot of brevity given its such a complex area. The problems in the Eurozone are not the fault of Target2 (its just a pipeline that enables EUR transfer between CBs). The problem is uncontrolled leverage - something the ECB is unable to undo - particularly given the state of the economy (even if they do Helicopter money its probably going to touch a bank). The amount of loop-holes in the implementation of the BASEL accords and local level implementation creates an entire arbitrage industry. The prudential standards implemented within mainland Europe are very poor - to ignore prudential regulation and its impact on bank behaviour is crazy - particularly if you look at Republican doctrine in the US.

Will London shed jobs to Europe, sure. Sales people but no where near the doom and gloom predictions. Its also clear that financial stability will trump Paris and Frankfurt ambitions to steal London's financial centre - we are expected to keep Euro clearing. And that's before you try to un-write nearly all financial contracts written in English law, fintech, data etc etc.

Whenever I see the Passporting is ALL argument, I think of this:



It tickles me.

[Mrr T]

stongle said:

wc98 said:

another thanks for the post from me. i am so glad you added the lehman brothers analogy as being illiterate in all things financial that was the opinion i was forming as i was nearing the end of your post, but thought it might be too simplistic (i usually am).

No probs, and to the others whom said thanks. I used a lot of brevity given its such a complex area. The problems in the Eurozone are not the fault of Target2 (its just a pipeline that enables EUR transfer between CBs). The problem is uncontrolled leverage - something the ECB is unable to undo - particularly given the state of the economy (even if they do Helicopter money its probably going to touch a bank). The amount of loop-holes in the implementation of the BASEL accords and local level implementation creates an entire arbitrage industry. The prudential standards implemented within mainland Europe are very poor - to ignore prudential regulation and its impact on bank behaviour is crazy - particularly if you look at Republican doctrine in the US.

Will London shed jobs to Europe, sure. Sales people but no where near the doom and gloom predictions. Its also clear that financial stability will trump Paris and Frankfurt ambitions to steal London's financial centre - we are expected to keep Euro clearing. And that's before you try to un-write nearly all financial contracts written in English law, fintech, data etc etc.

Whenever I see the Passporting is ALL argument, I think of this:



It tickles me.

I do not disagree with your assessment that the euro is creating strain and there seems little way out.

I also see you now say “sales” jobs will move from the UK to the rEU. So you are moving in my direction. Of cause it will not just be sales jobs, a regulated entity in the rEU, needs to have all key decision makers in the rEU. When the new rEU entity has more customers and better customers than the UK the natural progression is to move more and more to the rEU.

As for keeping euro clearing you must be joking! Would you allow contracts that have a fundamental impact on your currency and interest rates to be mainly cleared in a foreign country. We only kept them so far because of the SM.

Our biggest disagreement remains that you still seem to believe balance sheet remains important for servicing wholesale clients, my experience is in this sector is, bank do not want to have to use BS, and clients do not want to because it’s too expensive.

[Digga]

Mrr T said:

As for keeping euro clearing you must be joking! Would you allow contracts that have a fundamental impact on your currency and interest rates to be mainly cleared in a foreign country. We only kept them so far because of the SM.

I'm not in finance, but surely one possible reason and consideration is counterparty risk?

[Mrr T]

Digga said:

Mrr T said:

As for keeping euro clearing you must be joking! Would you allow contracts that have a fundamental impact on your currency and interest rates to be mainly cleared in a foreign country. We only kept them so far because of the SM.

I'm not in finance, but surely one possible reason and consideration is counterparty risk?

Counterparty risk is why the ECB wants it move. Derivatives clearing uses a central counterparty so all trades are given up to a single legal entity. If you where the ECB would you want billions of euro currency and interest rate derivatives with a legal entity outside the euro zone and soon to be outside the EU.