Global investment banks are expected to move hundreds of billions of dollars more in assets and risk transfers to the euro area at the urging of the European Central Bank, according to Bloomberg.
Citigroup Inc. officials are set to receive feedback on their plans from the ECB on Thursday, as other firms also prepare to hear the regulator’s thoughts, said the people, who asked to remain anonymous as the discussions are private.
Citigroup and its US rivals are among those getting ready to shift more assets, risk management capabilities, and staff as a consequence of the watchdog’s findings in a “desk mapping” review last year, according to the people. Spokespeople for Citigroup and the ECB declined to comment.
Almost seven years after the UK voted to leave the European Union, banks are still negotiating with regulators over the structure of their business in the bloc. While many investment banks have been reluctant to shift away from London given its deep liquidity and talent pools, the ECB wants to have oversight of financial risks for the EU that are embedded in the balance sheets of global banks.
“There are still discussions about the amount of assets that need to be transferred. We expect about €200 billion to €250 billion for Frankfurt and well over €300 billion in total,” said Hubertus Vaeth, managing director of Frankfurt Main Finance, a lobby group.
In 2018, banks agreed with the ECB to move about €1.2 trillion of assets to the euro area from the UK over several years. That process is largely complete, Andrea Enria, the ECB’s top oversight official, said earlier this year.
Still, the ECB initiated a desk-mapping review in 2020, covering mostly US lenders but also firms in the UK and Switzerland, to ensure that European risks are managed locally. The watchdog said last year that 21% of 264 trading desks at seven banks “warranted targeted supervisory action” and gave the lenders time to come up with plans to address its findings.
In some cases, assets were moved to the new European entities, but their risk was still managed from London by back-to-back booking arrangements. The industry estimates that asset transfers as well as the reversal of these booking arrangements will amount to hundreds of billions of dollars.
Kristine Braden, chief executive officer of Citibank Europe, said on Wednesday that the Wall Street firm continues to relocate staff following a pause during Covid-19 and is also in the process of moving some products.
“This week is actually a really important week because we’ll be receiving some of the results from our regulators on their future expectations and as a result there will be a lot of moves,” she said at the Bloomberg New Economy Gateway Europe conference near Dublin. “So maybe the messier part is yet to come.”
