ECB details capital plans as Bank of England leaves

The ECB welcomed ratification of an agreement on orderly UK withdrawal from the European Union, and said that subscribed capital is expected to remain steady after Bank of England leaves the European System of Central Banks.

The European Central Bank (ECB) expressed regret that the United Kingdom is leaving the European Union. However, the ECB welcomes the ratification of the agreement on an orderly UK withdrawal. In recent months and years, the ECB has taken steps to prepare for all contingencies and it will continue to closely monitor developments in financial markets to preserve stability. The ECB stresses that banks now need to press ahead with the implementation of their Brexit plans in accordance with agreed timelines.

• The ECB’s President, Christine Lagarde, said: “It is with great regret that we see our British friends leave the European Union. This agreement, however, will pave the way for an orderly and less disruptive departure. We will work hard to ensure Brexit causes as little disruption as possible for the citizens, employers and financial markets in the euro area and the rest of the EU.”

Specifically, the ECB has made the following preparations:

• The ECB and the Bank of England activated a currency swap arrangement in March 2019, through which the Bank of England offers to lend euros to UK banks on a weekly basis. As part of the same agreement, the Eurosystem would stand ready to lend pounds sterling to euro area banks if the need arises. This will reduce possible sources of stress in the financial system.
• In banking supervision, the ECB processed around 25 licensing procedures for banks relocating to the euro area and assessed the Brexit plans of 42 euro area banks that will maintain their UK branches after the United Kingdom leaves the EU. The ECB now expects banks to implement their plans in line with the commitments they made in the past – including the implementation timelines they agreed with their supervisors.
• The ECB and its UK counterparts have taken steps to ensure continued good cooperation in the area of banking supervision, also after the transition period ends. For this, a memorandum of understanding was agreed that will allow supervisors to continue exchanging information and to coordinate the supervision of cross-border banking groups.
• The Bank of England will leave the European System of Central Banks. The Bank of England’s current share in the ECB’s subscribed capital, which stands at 14.3%, will be reallocated among both the euro area national central banks (NCBs) and the remaining non-euro area NCBs on the basis of an updated key for subscription to the ECB’s capital. A separate press release has been issued.

Additional info:

• Total subscribed capital of the ECB to remain at €10.8 billion
• ECB to repay Bank of England’s share in its paid-up capital (€58 million)
• Bank of England’s share in ECB’s subscribed capital to be reallocated among remaining national central banks
• The European Central Bank (ECB) will keep its subscribed capital steady at €10.8 billion after the Bank of England leaves the European System of Central Banks (ESCB). The current share of the Bank of England in the ECB’s subscribed capital, which stands at 14.3%, will be reallocated among both the euro area national central banks (NCBs) and the remaining non-euro area NCBs.
• The Bank of England is due to withdraw from the ESCB as a consequence of the United Kingdom’s exit from the European Union. It holds 14.3% of the ECB’s subscribed capital, of which 3.75% – equivalent to €58 million – is paid up. This amount will be repaid by the ECB under the terms of the Withdrawal Agreement between the UK and the EU.
• As a result, the ECB’s subscribed capital will be reallocated among the other NCBs on the basis of an updated key for subscription to the ECB’s capital. The weightings will be recalculated based on each Member State’s share in the total population and gross domestic product (GDP) of the European Union after the UK leaves the European Union.
• Euro area NCBs pay up 100% of their subscriptions to the ECB’s capital, while non-euro area NCBs pay up 3.75% of their subscriptions. Since the shares of euro area NCBs will increase, and will be paid up in full, this will lead to an increase in the ECB’s paid-up capital from €7,659 million in 2020 to €8,880 million in 2022, as shown in the table below. The ECB’s paid-up capital will remain unchanged in the year of the United Kingdom’s withdrawal from the EU as the remaining NCBs will cover the withdrawn Bank of England’s paid-up capital of €58 million. Euro area NCBs will then pay up in full their increased subscriptions in two annual instalments, with the first due in 2021. These changes are an investment reflected in the NCBs’ balance sheets.

Breakdown of contributions following Brexit

Read the statements here and here