US banks could lose competitive edge in Europe, says EIB

The European Investment Bank (EIB) has warned it will avoid trading over-the-counter derivatives with US banks if it is forced to clear through a central counterparty (CCP).

The warning follows similar comments from the European Central Bank (ECB), which stated in a letter to the Commodity Futures Trading Commission last October that it might stop trading with US counterparties if eurozone central banks are not granted an exemption from clearing, execution and reporting requirements under the US Dodd-Frank Act.

“The US rules, as currently drafted, contain no exemptions for foreign sovereigns, central banks and multilateral development banks – and this is far from ideal,” says Eila Kreivi, director and head of capital markets at the EIB in Luxembourg.

“Organisations like central banks and development banks are not creating systemic risks, and have a very different function in financial markets. Their liquidity should not be tied up in CCPs. It is problematic, and if the rules stay in their current form, there will be a very serious reflection of the counterparties we trade with,” she adds.

Ultimately, it could mean US banks are no longer competitive in European markets, she says. “If you were faced with the choice between trading with a counterparty with which you would be forced to clear the trade, and one with which the trade would remain uncleared, the choice of counterparty is an easy one, all other things remaining equal. This situation would not look good for US banks, which would probably lose their competitive edge in Europe.”


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