joachim wuermeling : brexit - implications for uk branches of german banks speech by prof joachim wuermeling, member of the executive board of the deutsche bundesbank, at the embassy of the federal republic of germany, london, 14 february 2019. * * * 1 introduction ladies and gentlemen, from the perspective of a bank and from my perspective as a banking supervisor, the future regime under which banks and companies in general will operate after 29 march 2019 remains unclear. and whether we like it or not, a hard brexit has become increasingly likely. 2 implications of uk branches becoming third country branches this means that – given what we know at the moment – uk branches of german banks ( and ssm banks in general ) will need to become third country branches. certainly, the pra ’ s temporary permissions regime buys time. nevertheless, there is no alternative to conversion into third country branches. the pra has already received some applications for third country branch authorisation in the uk. for german banks, unlike other ssm banks, there is no formal requirement for the home supervisor to approve a third country branch. however, given the aim of establishing a level playing field among all current and future ssm banks, you should expect the ssm to address certain requirements via other supervisory measures where necessary to ensure that the future set - up of the new third country branches is in line with ssm expectations. this means that the ssm will not accept empty shells, neither from incoming nor from outgoing banks. a third country branch will not be allowed to perform central functions for its ssmdomiciled group. and any outsourcing must not hamper the efficient and effective supervision of ssm entities. not all ssm banks are currently fully compliant with the ssm ’ s respective supervisory expectations. in particular, all banks must ensure that they have relocated sufficient staff to the eu27 entities. eu business must be booked from within the eu27. this will require significant asset transfers in several cases. sufficient trading and risk - management staff as well as technical infrastructure are needed on site at the eu27 entities to ensure adequate risk management. 3 split of responsibilities between pra and ssm making the transition from the eu28 to the eu27 as smooth as possible for the financial sector will require close cooperation between the ssm and the pra. the details of such a split of responsibilities are currently being negotiated. i am convinced that london will remain an important financial centre after brex

partners. our exchange rate policy, which entails a flexible, market determined exchange rate, is motivated by the need to ensure that our balance of payments is sustainable. our interventions in the foreign exchange market, such as that which we carried out last week, are intended only to dampen volatility in the exchange rate, and not to impede adjustments in the exchange rate which are necessary to maintain external balance. finally, i want to address the issue of inflation. the outturn for inflation in 2016 has been better than we had feared it would be at this time last year, when inflationary pressures were building up. annual core inflation declined during the first half of 2016 and for the last four months it has settled down at an average of approximately 5 percent, which is in line with our policy target for inflation. the better than expected inflation outturn in 2016 is attributable to a combination of the tightening of monetary policy by the bou in mid 2015, when we raised interest rates, and the relatively stable exchange rate since october of last year. when we look at core inflation outturns over a longer horizon, we can see that they have been very close to our policy target. over the last four years, annual inflation has sometimes been above 5 percent and sometimes been below, but it has averaged 4. 9 percent. i hope that you will agree that this demonstrates the effectiveness of our inflation targeting monetary policy framework. to conclude, ladies and gentlemen, i believe that the prospects for macroeconomic stability in the near to medium term are currently very good. in 2017 we can look forward to real gdp growth which is close to the economy ’ s medium term potential growth of around 5 percent per annum. with inflationary pressures firmly under control we can also be confident that annual core inflation will continue to trend around our medium term target of 5 percent. thank you for listening.