François Villeroy de Galhau: The consequences of Brexit for the French and European financial sectors
Speech by Mr François Villeroy de Galhau, Governor of the Bank of France and Chairman of the Autorité de contrôle prudentiel et de resolution (ACPR), at the ACPR conference, Paris, 23 November 2018.
Clearly, Brexit is, and will remain, bad news not only for the United Kingdom, but for Europe as well. But to a certain extent it can also represent an opportunity to restructure the European financial system. We have an effective monetary Eurosystem consisting of the ECB and the 19 national central banks; we have the legal framework for a single financial market and – in part – a Banking Union; we have an exceptional savings capacity – one of the highest in the world – with an annual flow of EUR 400 billion in euro area financial savings in the second quarter of 2018.2 However, as yet we do not have a “financial Eurosystem”, made up of stronger and pan-European financial institutions and shared market infrastructures. Let’s be clear: there will not be a single City for the continent, but rather an integrated polycentric network of financial centres, with specialisations based on areas of expertise. A polycentric system of this nature can function, as illustrated by the United States: New York’s financial centre is favoured by corporate and investment banks, Chicago’s financial centre handles futures, while Boston specialises in asset management.
Paris is well qualified to become the “market hub” of this new European constellation. Our capital hosts four of the euro area’s eight global systemically important banks, the top life and non-life insurance sector and asset management industry, one of the leading bond markets and the largest continental commercial paper market with NEU-CP. It is also the biggest private equity investor in continental Europe. In addition, the French financial authorities, including the Banque de France and the ACPR, are working together to facilitate the dissemination of sound and safe financial innovations and to foster the scaling up of sustainable finance. Moreover, Paris offers the leading source of highly qualified financial services personnel. Consequently, many global banks have already decided to transfer the majority of their market activities to Paris.
This new system will require a single rulebook implemented in a harmonised manner. And we are close to achieving it in the banking sector, but we are not quite there in the insurance sector. It is thus necessary to further strengthen the role of the European supervisory authorities, and France supports – although it remains a little too alone in doing so – the Commission’s proposed reform of the ESAs. For example, EIOPA must be allowed to create, at its own initiative, cooperation platforms to better supervise entities whose activities mainly involve cross-border transactions performed under the freedom to provide services regime. EIOPA’s role as a neutral mediator in the internal model approval process at group level must also be reinforced, without giving it direct power in the approval process, which would undermine its neutrality.
This “financial Eurosystem” will also require shared infrastructures within the Union capable of offering services beyond the confines of the euro area: examples such as T2S and TIPS, the new interbank instant payment settlement system, both multi-currency services, show us that it is possible. We must also deal with the question of private monopolies in the clearing sector. We must ensure that critical key players do not become “too big to fail”. Of course, by its very nature clearing is an activity that generates major economies of scale, and thus encourages concentration. But greater competition is absolutely necessary to stimulate financial innovation. Fortunately, LCH SA will centralise repo transactions at the beginning of 2019. More generally, we would like to see the development in Paris of an enhanced and extended clearing services offering in the area of interest rate derivatives.
The full speech is available at https://www.bis.org/review/r181123d.htm