The chief executive of ING, the Dutch bank, has warned that London would “shoot itself in the foot” if it forced banks based elsewhere in Europe to set up separately capitalised operations in the UK after Brexit.
Ralph Hamers said it would be “very detrimental for the financial industry in London” if regulators blocked banks based in the European Economic Area (EEA) from continuing to operate in the UK through more lightly capitalised branches.
Most attention has focused on how Brexit may stop banks from using London as a base to sell to clients in other EEA countries. But lenders in the rest of Europe are starting to consider whether their access to the UK could also be hampered.
Many of Europe’s largest banks have sizeable operations in the UK, which they operate through a branch structure, allowing them to benefit from a lighter regulatory regime and lower capital requirements in Britain.
This is because banks based in the EEA are free to open operations in other members of the bloc without needing to set up a full subsidiary.
Sam Woods, head of the Bank of England’s Prudential Regulation Authority, warned that this may change for some, especially if they have significant deposits from British consumer and corporate customers.
“The PRA will expect those EEA bank branches which have significant retail/SME transactional deposits to discuss with it whether they need to establish a subsidiary, if they plan to continue that activity in the UK after its withdrawal from the EU,” said Mr Woods in a letter to bank bosses in April.
Mr Hamers said he did not expect Brexit to have a sizeable impact on ING, mainly because much of the business it does in the country is for British customers.
The Dutch bank has about 600 of its 52,000 staff in the UK, where it generates €500m of its €17.5bn revenues and has €16bn of its €226bn total wholesale banking loan book. It sold its ING Direct UK consumer business to Barclays in 2012.
Mr Hamers said that in a “hard Brexit scenario” that severs UK-based banks’ access to EU markets, it may have to move much of its financial markets trading business out of London. “But that is limited in terms of the number of people,” he said. “We could run our trading book from anywhere: New York or Singapore.”
He added that its wholesale lending business could be booked elsewhere while keeping the specialist team based in London.
His comments came as ING reported a 1 per cent increase in first-half net profit from continuing operations to €1.37bn, beating analysts’ expectations. Its revenues fell slightly, as low interest rates squeezed lending margins, and costs rose 3.6 per cent.
The Bank of England in 2015 introduced tougher rules for authorising third-country branches. It now weighs both the size of their UK deposit base and the strength of their home country’s “resolution” regime for dealing with a banking collapse to decide which banks should be allowed to operate through a branch in Britain.
Some of India’s biggest banks, including State Bank of India, have been forced to inject hundreds of millions of pounds to capitalise new UK subsidiaries that the Bank of England asked them to set up to house their consumer-facing activities.
The UK rules partly stem from the bitter experience of the 2008 financial crisis, when Britain had to compensate depositors who lost money they had stowed in branches of Icelandic banks that collapsed.