The world’s largest investment banks are increasingly concerned about a looming blow from Brussels to their ability to sell services to the EU.
In late 2021, Europe abandoned plans to ban so-called cross-border access, with banks bristling at the prospect of having to move capital and liquidity to the bloc rather than using their global balance sheets to fund operations.
However, restrictions on cross-border sales are hotly debated again as the EU seeks to tighten its grip on its financial markets. The European Council, Parliament and Commission are close to finalizing an agreement to restrict access as part of a broader package ostensibly aimed at introducing the latest Basel capital rules for global banks.
“This is shaping up to be the final stage of negotiations where the two sides will come to an agreement on how much constraints their banks will face,” said one of the people, adding that a decision was expected as early as Thursday. However, others warned that the deal could still fall through.
Earlier this month, officials circulated a technical paper outlining a range of options for a crackdown, with banks arguing that some form of restriction was inevitable.
“It’s a big deal, and if it falls in the wrong place, we’re talking big numbers,” said an executive at a large international bank, in line with Citigroup, HSBC, JPMorgan, Morgan Stanley and Goldman Sachs. Concerns expressed privately echoed that.
The proposals are at odds with the initial ban, but major international banks say they remain very concerned about the impact of the measures on their business, especially on their ability to conduct large transactions in small countries or in obscure currencies.
“It’s hard to say how difficult it will be,” said an executive at another large bank, adding that it could be “costly but livable…”. . . or not work at all”.
One compromise being discussed in Brussels involves narrowing the scope of the ban to allow for a broader exemption from “reverse solicitation”, in which foreign banks are required to provide services in the EU rather than offer to strike deals.
“It just didn’t work,” said the first executive, because the concept of a reverse solicitation meant that clients had to actively seek services, which was very restrictive.
Other options include designating certain products that foreign banks cannot offer to the EU, including deposits and loans.
Banks say this is problematic because they can end up accidentally offering some of these services, for example, if they do wholesale transactions for customers and end up with leftover cash balances, which can be considered deposits.
Instead, the lenders argue, there should be a complete exemption for corporate or professional clients who rely on services provided by global banks and who can judge well the risks of buying those services from banks outside the EU.
An executive at another bank said the EU did not understand the impact of its proposals on capital markets. Germany, which has become a center of capital market activity after Brexit, continues to push for a more appropriate approach to restricting third-country banks from offering banking services in the EU, two bankers said.
The EU has also proposed measures to require foreign banks to set up subsidiaries in the bloc as soon as possible, rather than operating through branches.
Citigroup, HSBC, JPMorgan, Morgan Stanley and Goldman Sachs declined to comment. Bank of America and EU institutions did not respond to requests for comment.