Financial Stability Warnings Issued for Banks Before EU

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: Just two days before the crunch EU summit (October 18^th), Professor Dr. Andreas Dombret, former Board Member of the Deutsche Bundesbank (2010-2018), has urged banks not to rely on the ‘safety net’ of a post-Brexit transition period, warning that the economic consequences of insufficient preparation for a hard Brexit would far exceed the costs of proper preparation.

“We should make no mistake: an agreement at the EU summit this week – as much as one would wish for one – is anything but a sure thing, and even the no deal scenario remains possible in light of the fundamental differences between the negotiation blocs,” stated Prof. Dr.Dombret, speaking at the UK & European Banking Study launch hosted at London’s Pewterers’ Hall this morning (16 October 2018) by zeb, one of the leading strategy and management consultancies for the financial services sector.

“Although Britain and the EU have agreed in principle on a transition deal lasting from Brexit to the end of 2020, it is part of a broader divorce settlement that has yet to be formally adopted. Financial institutions must not fall prey to a false sense of security that there will be an agreement and that they have sufficient time left to adapt to the new framework.

“The point is, a transition period still doesn’t give businesses the certainty they crave. Mario Draghi has underlined in the European Parliament that political uncertainty will remain for quite some time to come. The President of the ECB is absolutely right: the transition phase is not a safety net.”

Bertrand Lavayssière, Managing Director UK at zeb, commented:

“With recent financial stability warnings issued by both the Bank of England and the European Banking Authority over lack of adequate Brexit planning, time is rapidly running out for banks to take action to ensure there is no disruption to business after Brexit.

“The current political upheaval comes at a time when financial institutions are experiencing unprecedented challenges. Our new study of the 50 largest banking groups in the UK and Europe reveals that banks are operating in unstable market conditions fuelled by unsustainable profit taking, crisis level valuations and dwindling market share, putting future profitability at significant risk. Banks are haemorrhaging market share to other financial intermediaries, including shadow banks and non-banks, which now hold almost half of the assets in the European financial sector, moving from 22% in 2008 to 48% in 2017.

“A decade after the banking crisis, we have now reached a tipping point and banks urgently need to switch from “recovery mode” to “action mode”. The time has come to profoundly revamp parts of the business models. Top performing banks will be those most capable of selecting a path of true differentiation while simplifying and standardising the rest. It is imperative that they have sufficient funding, informed decision making and the adequate senior management empowerment to ensure they can not only live through this period of uncertainty but also thrive in the new post-Brexit era.”

zeb hosted a Business Breakfast to launch its UK & European Banking Study on Tuesday 16 October at London’s Pewterers’ Hall. Prof. Dr. Andreas Dombret delivered his views on the European banking sector and the potential impact of Brexit through a Q&A.

zeb’s UK & European Banking Study (EBS) is the industry’s leading research for understanding issues impacting the Top 50 European banks. EBS 18 profiles and ranks every top 50 European bank, based on analysis of capitalisation, total assets and return on equity.

zeb is a strategy and management consulting firm specializing in the financial services sector. Established since 1992, zeb provides its clients with a 360° array of services, ranging from strategy development, corporate management, human capital and IT. Building on its academic legacy, through a combination of excellent, in-depth subject and industry knowledge and insightful strategic thinking, zeb empowers its clients to develop and implement pioneering strategies to overcome their most critical business challenges.