‘Capital Markets Union will require considerable commitment among policy makers to make sustained progress’ – Governor Philip R. Lane addresses Reuters Newsmakers event

• Capital Markets Union is essential if the euro area is to reap the benefits from a more balanced financial system
• The post Brexit environment is unlikely to see financial activity cluster in a single location in the euro area
• Long term relationships between the EU and UK likely to involve extensive ongoing trade in financial services

Governor of the Central Bank of Ireland and ECB Governing Council member, Philip R. Lane, today addressed a Reuters Newsmaker event in London on the theme, ‘The European Financial System After Brexit '.  The speech focused on the impact of Brexit on the Eurosystem and in the wider international context. He said that the potential implications of Brexit on the configuration of the European financial system were dependent on the UK-EU negotiations. However, he said, ‘if UK resident firms are no longer treated as equivalent to EU firms for regulatory purposes, it is likely that significant migration of activity from the UK to the EU would occur.’

He said, ‘In a post Brexit environment, it is unlikely that financial activity will cluster in a single location in the euro area, since no individual location offers a close substitute to London’. He continued, ‘The decentralised nature of the Eurosystem, with monetary operations largely executed through the national central banks, may also facilitate a multi-polar financial system in the euro area.’

Governor Lane stated that the impact of Brexit means ‘the Capital Markets Union (CMU) agenda now takes on greater urgency, in order to enable deeper and more liquid markets in euro denominated instruments. This is essential if the euro area is to reap the benefits from a more balanced financial system, in which equity and bond markets offer an alternative to banks in intermediating funds between savers and investors. The CMU agenda is quite demanding in terms of the range of individual components, such that it will require considerable commitment among policymakers to make sustained progress.’

He said that any new long term relationship between the UK and EU is likely to see extensive ongoing UK-EU trade in financial services, with associated high levels of bilateral flows. He added that ‘effective regulation of these firms will require continued collaboration between UK and EU regulators (in partnership with other global regulators)’.