London’s Role In Euro Transactions Comes Into Focus With Brexit

British banks are the largest institutions dealing in euros outside the European Union’s single currency area according to the Quarterly Review report released recently by the Bank for International Settlements (BIS).

BIS which is a forum comprising of central banks said that the Brexit vote in June has put the spotlight on London’s role as a financial hub for the Eurozone . If Britain fails to retain its single market access after it formally exits the EU, London’s current status as the pre-eminent financial centre could become uncertain.

French President Francois Hollande has said earlier that euro-denominated clearing which is currently handled largely in London should be shifted to a location within the EU. British banks have already put in place contingency plans to shift operations to the Eurozone in a bid to ensure that their services are not affected if the UK loses access to the single trading bloc.

The Banker

The BIS report reveals that UK banks reported $4.5 trillion in cross border lending, beating banks from Japan and United States. Britain is placed just behind the United States in terms of being a recipient for cross border bank credit at $3.8 trillion. Much of London’s banking activity is attributed to overseas banks that have affiliates in Britain.

American banks have the largest outstanding foreign claims at $460 billion on Britain while banks belonging to EU member countries have claims worth $1.3 trillion, making them the largest segment with 56 percent. British banks currently contribute for almost 54 percent of all worldwide claims in euros that are booked outside the Eurozone. They also account for around 60 percent of total liabilities.

In a statement, the BIS said

The United Kingdom has a particularly important role as a redistribution hub for euro-denominated funds. Indeed, ever since the launch of the single currency, euro-denominated positions have been a major part of the cross-border portfolios of banks located in the United Kingdom

The share of the euro in cross-border claims on British banks has however been declining, falling from 39 percent in 2012 to 33 percent this year. London is the largest currency trading center in the world according to data from the BIS. It accounts for 37 percent of total daily volumes worth $5.1 trillion. Traders from London buy and sell twice as much euros as those from other EU member countries. The Brexit vote also resulted in several central banks easing their monetary policies, which has driven down yields in markets.

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