As the UK prepares to leave the EU, there are many questions on how the Brexit will take place. Among a number of things is the question on the future of the European Banking Authority (EBA). This article digs deeper into what the EBA is, why EU member nations are fighting for hosting the EBA. We also look at some of the key EU countries where the EBA is most likely to move, if it moves out of the City of London.
The European Banking Authority (EBA) is an independent financial authority for the European Union (EU). The EBA is tasked to contribute to the creation and maintenance of single rulebook in banking in the EU.
Established in 2011, the institution specializes in bringing uniformity among all the banking institutions based on the European Union, going in line with the principles of the EU which include a common market place.
The EBA is one of the cornerstone intuitions in bringing transparency to the EU’s single market and the banking institution at large. As a regulator, the EBA has the power to overrule national regulators as well and is famously known for conducting the EU bank stress tests.
Founded on 1 January 2011, the EBA is part of the European System of Financial Supervision (EFSF) and was set up in the aftermath of the global financial crisis of 2008 and the Greek sovereign debt crisis.
The EBA has a lot of significance for the European Union as it helped to financially merge the 28 states of the European Union during the heart of the sovereign debt crisis. The EBA is currently registered in the City of London and employs around 170 staff. It has an annual budget of €33 million currently. The EBA was a “political gift” to London.
The EBA and Brexit
After the June 2016 Brexit referendum which led the UK, voting to leave the EU membership, there are now questions as to where the EBA will be relocated.
The UK for its part is of course trying its best to keep the EBA in the City of London, something which is likely to come up in the Brexit negotiations which start on 19 June 2017.
However, there are other contenders for the EBA. Frankfurt and Paris are two cities that are running head to head in a bid to host the EBA. Besides these two cities, it is expected that nearly 18 other EU member states will also be competing to host the EBA. Other cities include Barcelona, Stockholm and Dublin to name a few.
Earlier in April, the Brexit secretary, David Davis said that “no decision was made” in regards to the location of the EBA. He said that the government will keep its options open and will discuss with the EU leaders on how to continue its cooperation with the EU institutions.
EU officials on their part maintain that the EBA must go to an EU member state, citing that all EU institutions are based in one of the EU member states.
EU officials have also highlighted this fact, with Valdis Dombrovskis, the current president of the European Union telling reporters in late March that the EU will have to decide quickly on the future of the EBA before Brexit.
“We need to take this decision relatively quickly, and not wait for the end of the (Brexit) negotiations, because it takes quite a lot of time of practical preparations for the movement from London to another place,” Mr. Dombrovskis said, according to Reuters.
Why are EU member states in a race to host the EBA?
Among the different considerations being made, one option includes merging the EBA with the European Insurance and Occupational Pensions Authority (EIOPA). This is referred to as the “twin peaks” model.
If this plan is put into action, then the EBA will be moving to Frankfurt as that is where the EIOPA is located as well. This would automatically put an end to the race among the EU countries to host the EBA.
The EBA is considered to be one of the “crown jewels” of the EU. Although hosting the EBA in a particular EU member state does not give that country any special benefits, it is more about a matter of pride. There are a number of benefits for relocating the EBA.
For one, the member nation will have a say in influencing policy on financial matters for the EU. Although 170 jobs is an unlikely factor, the EBA will put the EU member state on the world map. Closer coordination with regional banks in the member state will also mean that the financial sector will be able to grow stronger.
Who are the biggest contenders for the EBA?
Despite many EU states bidding to relocate the EBA to their country, the race is clearly between Germany and Paris.
German officials argue that the EBA should rightfully move to Germany because of the fact that it is already home to the EIOPA and the European Central Bank (ECB). Coordinating policy is seen to be much easier when the EBA is moved closer.
Paris on the other hand argues that it is home to four of the eight largest European banks and thus the EBA is better off relocating to Paris so it can coordinate with the financial sector accordingly. While making the bid, the then Prime Minister, Francois Hollande noted that the EBA would benefit from the proximity with the European Securities and Markets Authority (ESMA) which is located in Paris.
When will the decision on the European Banking Authority be made?
At the time of writing there is no clear time-table on where and when to relocate the European Banking Authority. With the UK and the EU negotiations already underway since June 19th, further information is expected to be released.