European Central Bank seeks power over key financial sector

Specifically, it asked to change Article 22 of its statute to say: “The ECB and national central banks may provide facilities, and the ECB may make regulations, to ensure efficient and sound clearing and payment systems, and clearing systems for financial instruments, within the Union and with other countries”. At present, around 90% of those trades – worth around $900 billion each day – are cleared via banks and institutions in London and E&Y estimates that as many as 83,000 jobs could be lost if the industry leaves for the United Kingdom.The changes would give the ECB a “clear legal competence in the area of central clearing”, paving the way for a “significantly enhanced” role in authorising and supervising euro-clearers in “systemically important” third-party countries like London. The Commission will issue an Opinion on this Recommendation.LCH’s SwapClear now clears more than 90% of euro-denominated interest rate swaps traded by eurozone banks.But the European Commission wants powers to move euro clearing away from London post-Brexit, as well as to force UK-based clearing houses to stick to EU rules and accept European Central Bank requirements.Jakob von Weizsaecker, a German lawmaker in the European Union assembly, said the ECB’s proposal “is a welcome recognition of the key role that central banks play as provider of liquidity in their own currency to CCPs, especially in times of crises”. Bank of France governor François Villeroy de Galhau, on Thursday, pressed the case for forcing major euro-clearing houses to base their operations in the EU. Nor is it necessary for financial stability.The ECB’s support for a euro clearing location policy is long-standing.The proposal on Friday “would pave the way for the Eurosystem to exercise the powers that are foreseen for central banks issuing a currency” in the commission’s plan, according to the ECB. “Indeed it can damage it”, Carney said “Fragmenting clearing would lead to smaller liquidity pools in CCPs, reducing the ability to diversify risks and diminishing resilience”. In a 2015 judgment, the EU’s General Court ruled that the European Central Bank lacked this authority. It seeks “clear legal competence in the area of central clearing” of euro-denominated financial contracts, giving it more control over non-EU clearinghouses – including those in the United Kingdom after Brexit – that are deemed systemically important to the bloc’s financial markets.