Brexit Hasn’t Been All Bad for Banks

For banks, one Brexit silver lining has kept on shining, at least for a while.

The U.K. vote to leave the European Union on June 23 hit international financial institutions in a number of ways. Many may have to find new headquarters for their European operations. And the sharp decline in interest rates since then will make it less profitable for banks to lend money.

But there was one positive impact: Sudden volatility after the referendum led to a surge in trading activity, boosting bank commissions. A mere week of strong trading activity following the vote had a visible impact on the second-quarter results of several major banks, helping them beat expectations.

This Brexit dividend extended into July. Data out Friday from the Securities Industry and Financial Markets Association show average U.S. bond-trading volume in July rose a sharp 9% from a year earlier. That compares with a 6% rise in June, and a miserable start to the year when volumes were anemic.

Of course, barring another shock event, trading will likely settle down in the months ahead. Seasonally, the second half of the year generally sees less trading activity. And certain structural factors, like new regulatory limits on bank risk taking, remain in place.
And for the first seven months of the year, average bond trading was up just 1% from a year earlier. But that is still significant, given than volumes fell for five straight years through 2015. In a tough year for banks, some extra trading revenue will be very welcome.

Write to Aaron Back at aaron.back@wsj.com

First appeared at WSJ