Banks Face $17B Brexit Bill
The Brexit could cost U.K. banks around $17 billion as they look to reshuffle various activities to different points in Europe, according to a study from the Association for Financial Markets in Europe. The study further notes that those costs will likely act as a weight on bank profits for the next several years.
How much British banks will have to shift their operations remains to be seen — the U.K is currently negotiating its Brexit deal and hopes to maintain as much EU market access as possible (without actually being members of the single market). The cost of creating and transacting though subsidiaries in the EU would have a “material impact” on banks’ revenue pictures — and those increased costs will likely find their way back to customers.
The worst case scenario for banks is one where no deal is made and the U.K. is simply out of the EU entirely with no deals or concessions set — British banks could find themselves moving as much as €1 trillion of bank assets.
There are also questions of how check clearinghouses will work, as it seems at this point the European Union could force clearinghouses that do a large chunk of business in euros to move into the EU. That could see as much as €83 trillion of euro-denominated interest-rate contracts pulled out of the U.K. European banks picking up the slack would be forced to hold an extra €30 billion to €40 billion of collateral. Siphoning off contracts to a new location could make clearing more expensive, analysts say, since it is a business that largely depends on scale.
However, while banks are looking likely to get bit by a hard Brexit, business owners are a bit more sanguine.
“Most businesses we interviewed told us that they expect their banks to address all the challenges and absorb all the costs that Brexit could create,” the AFME report said.