The EU fired a major global trade war tit-for-tat retaliation today against US banks and the UK in a single action.
Brussels will raise costs for foreign lenders while simultaneously taking a pot shot at London.
Please consider EU to Retaliate Against US Bank Capital Rules.
Brussels is proposing to tighten its grip over overseas banks operating in the EU in a tit-for-tat step against the US that will raise costs for big foreign lenders and potentially hurt the City of London after Brexit.
The European Commission will unveil provisions on Wednesday that mirror controversial US “intermediate holding company” rules that ringfence foreign bank capital. When these were announced in 2014, the EU complained to Washington of “protectionism” and threatened to retaliate.
If adopted into EU law, the commission’s proposals would force big US investment banks such as Goldman Sachs and JPMorgan to hold additional capital and liquidity in the EU so their subsidiaries can be separately wound up in a crisis by European authorities.
The counterblow from Brussels, slipped into late drafts of the proposal, will be welcomed by European banks that have been complaining about an unlevel playing field with their US rivals. But it underlines the accelerating trend towards further fragmentation in financial rules, as jurisdictions assert control even at the risk of duplicating international requirements.
Although EU officials insist the proposal was drafted without Brexit in mind, the reforms would potentially affect London as a non-EU financial centre. The proposal could add costs and complexity to UK-based banks by forcing them to establish a separate pool of capital in the EU after the country leaves the bloc.
“This is a taste of what is to come,” said one adviser to an investment bank that would be affected by the rules. “At a time when everyone is rethinking bank structures, it adds one more point of uncertainty.”
He added: “If you must create an EU holding company that acts as your hub, the question becomes: how many European hubs do you want?”
The move is likely to stoke tensions between the US and Europe, which have already been ignited by a $14bn claim on Deutsche Bank from the US Department of Justice to settle claims of mis-selling mortgage securities.
European officials have also pushed back against US-led pressure for tough capital requirements to be introduced by the Basel Committee of global regulators in a move that some European banks claim would put them at a disadvantage to their US rivals.
US banks say they are already forced to hold significant amounts of capital and liquidity in their large UK operations. But if Europe presses ahead with the latest proposals, it could force them to increase the amount of resources they have tied up in Europe.
In 2014 Michel Barnier, then EU’s financial services commissioner, warned that US plans to force foreign banks to hold more capital were “protectionist” and risked bringing a “fragmentation of global banking markets”. Mr Barnier is now the commission’s chief Brexit negotiator.
The US and EU both want to be in control of a very fragmented and essentially insolvent global banking system.
It appears the UK was caught in the middle of a US-EU dispute, but in reality, the EU wanted to punish the UK and would have done this anyway.
Regardless, this adds fat to the fires of retaliations even as far bigger problems loom. Italy may be one vote away from leaving the Eurozone.
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Very few see what is coming.
Mike “Mish” Shedlock
The rule actually makes sense if the EU/US are anticipating another 1932 bank failure situation. Which would be a word to the wise….
Before all else the EU should cast the mote from its own eye first by implementing proper stress tests and not manipulating either the test or the results.
Mish, never trust the EU or much of what it says or guarantees it gives.
EU have gone back on previously agreed budget limits given to Cameron and increasing exit bill.
http://news.sky.com/story/german-finance-minister-uk-could-pay-into-eu-for-another-10-years-10661363
A tough fight is about to ensue. A number are predicting a poor outcome for the UK. They will go after financial services and I suspect even change laws retrospectively.
Doesn’t all the 27 nations of the EU have to vote on this first? if they do we can sit back and relax while they revert the usual non-concensus.
Probably not. At most Qualified Majority Voting and if it results in more income into the EU it’s a foregone conclusion.
Not every decision needs to go before the parliament and not everything needs unanimous agreement.
There could be good reason fornthese changes but outside of that there will be a face off between the Anglo-saxon approach to capitalism and the EU approach.
The EU weapon is access to 400M people. The Anglo-saxon must be the freedom of individuals and markets to transact under the rule of common contract law with minimal state intervention and only the regulatory level necessary to achieve those ends.
Countries like Ireland will need to decide where they sit.
“Countries like Ireland will need to decide where they sit.”
Wolfgang Schauble needs to decide where Germany’s sovereign gold stash sits. Right now, it’s alleged to reside beneath the streets of Manhattan.
Global bank wars will reduce liquidity and lead to insolvency. For a bank war to be “winnable” large European banks have to be expecting US-UK banks will increase reserves held in Europe. If I were a US-UK bank, I would just stop lending to people and governments who don’t have the means to repay debt. As PIGS default on debt, Germany too will default since it holds the most PIGS debt. The recent increase in yields / stronger USD in the West supports this developing scenario
“The European Commission will unveil provisions on Wednesday that mirror controversial US “intermediate holding company” rules”
That sounds very fair. Yes, it will mean more capital available to bail-in. Also means USA banks won’t be able to move their derivatives risk-free to the EU, which would be the case now. As to the UK, they should be able to navigate around this. Does not sound like UK punishment.
Might drain some cash out of London held there by US banks but as London should be outside the EU it’s no less than could be expected.
It reads as reciprocal to the US.
It is understandable and will drain reserves out of US banks in London into the EU. Pity the EU don’t address their testing regime. Of course a fair few EU banks would be bust if they did.
What the globe needs is banks that are prudent stewards of the deposits entrusted to them. Not casino gambling with deposits, or the construction of Keynesian pyramids (millions of empty McMansions).
https://i.imgflip.com/11ayv3.jpg
When Trump orders the Treasury (and the not-so-independent Fed) to terminate the USD swap agreement that keeps the ECB afloat (on paper at least), we will see how long this lasts.
Deutche Bank, BNP, and Unicredit all have big offices in New York (and London) — which they will have to write off as total losses if this EU suggestion actually gets enforced by member states.
Germany’s Allianz and France’s AXA insurance both have massive operations in the USA, and that doesn’t count Allianz’s ownership of PIMCO.
In short, the EU just committed suicide. France and Germany (and others) cannot really implement the EU’s suggestion even if they agreed with it. It is an empty bluff.
Not arguing with Mish about whether the Eurocrats passed an anti-US/UK measure — just pointing out that member states (including France and Germany) cannot implement it.
Go ahead Ms Merkel. Bankrupt Deutche Bank and see if you get impeached before or after Christmas. The CDU might as well concede the next election.
Hollande is already out of the picture, and Parisian bureaucrats own a lot of stock in BNP. They might put up a show and a brave face, but the EU’s directive will only be implemented on paper, not in reality.
And Mish already pointed out that Italy’s government is about to be replaced by one of three anti-EU opposition parties.
This EU directive is dead on arrival.
To start, have the EU countries pay their full share of NATO costs. Then have the EU pay for any retroactive monies which may exist. And lastly, let them pay for their own defense. That should help defray the EU imposed banking expenses on the US.
“To start, have the EU countries pay their full share of NATO costs.”
They should pay for the cost of the US occupation of Europe?
They’re just upset becasuse Hillary Clinton will NEVER be president of the United States!
NEVER!!!!!! Hah!
It is just too late for the EU to compete here as the Dollar is too strong.
The EU needs the cooperation of the U.S. Fed which is owned by the U.S. Banks.
In the long run, China and India win. The EU and Japan will just be the early losers.
Can’t wait for Trump to take office and send the EU an invoice for defense services.
What goes around comes around.
Defense from whom?
The EU passed a new regulation. That doesn’t mean any of the member states will (or are able to) implement it.
If Germans have to choose between Merkel and their savings accounts at Deutche Bank, Merkel will be impeached. The CDU won’t go along with her suicide mission
Requiring US banks to retain more capital and reserves inside Europe while allowing European banks to maintain absurd levels of leverage is asinine, not to mention the stress testing loopholes affording EU banks. Once again, the EU is trying to blame others instead of fixing its own problems.
Nonsense.
Every country should be demanding more capital from the banksters.
Given the levels of corruption, greed, deceit and theft in the entire industry it behooves every country to reduce its exposure to these mafiosi.
No?
Sounds like the EU crying like a little baby with wet diapers.