Brexit Means EU Needs Bank Champions, German Regulator Says

(Bloomberg) -- The U.K.’s impending exit from the European Union has increased the need for banking giants in the bloc that can rival those in London and New York, according to Germany’s central bank.

“The bigger the risk of a hard Brexit becomes, the harder we should try to develop global champions on the continent,” Joachim Wuermeling, a member of the Bundesbank’s Executive Board. said in an interview. “It would be good to see a German bank among them, and I’m sure that will be the case.”

A decade after the financial crisis, European banks are still trading at a fraction of the valuations they commanded during boom times and many are struggling to move beyond repairing their businesses. Deutsche Bank AG has held on to its ranking as one of the world’s most systemically important lenders despite struggling to restore growth after a series of failed strategy reboots.

Wuermeling didn’t say whether he would favor mergers between specific banks to create champions. Combining Deutsche Bank and smaller German rival Commerzbank AG has won the backing of government officials who are keen on creating a financial heavyweight to support the country’s exporters before a downturn strikes.

EU policy makers are racing to develop the bloc’s capital markets before Brexit potentially restricts firms’ access to London’s investment banks and market infrastructure. “If you take the bank balance sheets of Frankfurt, Paris and Dublin together, we can compete with New York,” Wuermeling said.

In the interview in Frankfurt on Friday, Wuermeling also said:

  • Brexit won’t threaten financial stability if market participants, regulators and legislators all prepare for it.
  • Supervisors have flexibility in their enforcement of the rules, and some tolerance may be needed to avoid market disruptions.
  • Banks shifting operations from the U.K. to the euro area want to relocate the smallest number of staff possible, while supervisors have made it clear that letterbox firms won’t be tolerated. Authorities are trying to strike the right balance.

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