- fited from the stream of human capital from the mainland. on the other, the negative consequences that it is claimed arise from free movement are issues that numerous “ brexiteers ” in the run - up to the referendum have cited as reasons why they believe the uk should leave the european union. for some, eeamembership is regarded as the equivalent of jumping from the frying pan into the fire. many other forms of cooperation are therefore also imaginable, including established models such as the wto framework. for banks, a situation in which the uk were to become a third country would allow for a spectrum of outcomes, depending on what is negotiated. at the lower end of cooperation, an ordinary third country status would require uk banks and banks from foreign countries to obtain licenses for their branches in any given eu country. also, working capital would be required as a basis for supervision – i may ascertain this at least with respect to germany. this should indeed give incentives to banks from third countries to establish subsidiaries in only one eu country and in this manner avoid the need to acquire more than one license in the eu. bis central bankers ’ speeches even so, the ordinary third country statues may significantly interfere with the current business models of banks. for those foreign banks that currently use their uk subsidiaries as a hub for the european market, the uk serving as a third country would compromise their business models in the eu. certainly, there would still be room for further bilateral agreements. thus, german authorities could grant exemptions to foreign institutions. for banks with a british license, a more favourable supervisory treatment is conceiv - able. supervision might even be performed in a manner akin to if the uk were an eea member. but this hinges upon several requirements. most importantly, the uk would have to follow the internationally approved canon of supervisory policies. if this were the case, eu members would want to protect themselves against any form of regulatory arbitrage. also, this would require substantial, political willingness on both sides. however, such political goodwill might suffer if and when brexit goes ahead. we will have to wait and observe. generally speaking, we cannot make reliable predictions about the future legal framework for banking across the channel. planning uncertainty is bound to be costly. businesses on both sides of the channel are unable to make any longer - term plans as long as these conditions haven ’ t been clarified. on the other hand, location shifting takes time and encourages banks to react

##rse has the potential to become such a bridge. clearly, the leave vote poses new challenges for the corporate governance of the merger : the parties concerned need to find a governance structure which balances all reasonable interests – even at the expense of synergies. furthermore, i am convinced that, in the medium term, euro clearing cannot take place to the existing extent in london – frankfurt would be the more appropriate alternative. the referendum commission set up by deutsche borse and lse is now being put to the test in terms of its ability to work calmly, and needs to keep in mind the economic rationale of the proposed merger which has gained greater credence through the brexit vote. but uncertainty following the brexit decision is much less due to economics and much more due to politics. indeed, almost all the economic consequences are associated with political uncertainty. as we all know, economic uncertainty is a product of political uncertainty. the fact that the mechanics of leaving the eu are laid down in article 50 of the treaty of the european union is well - known to most people by now, but it only governs the negotiation process without changing the complexity of its nature in any way. clearly, the practical implications of a brexit depend to a large extent on what will be agreed upon in brexit negotiations. and this is also true with respect to banks on both sides of the channel. many institutions have shaped their business models in accordance with the cooperative financial framework in the eu. european banks based on the continent operate in the uk market and have branches in london. the city of london is also home to a great number of non - european institutions which use the passporting regime of the eu to conduct business in any other eu country, making london a hub for the entire european banking market. so what could happen with respect to the passporting regime once the negotiation period has ended? one thing is clear : it will very much depend on politics. in the event that the united kingdom decides to remain a member of the european economic area ( eea ), not a great deal would change for banks and enterprises on both sides of the channel. eu rules for banking super - vision equally apply to members of the european economic area. current supervisory powers would likewise remain unaffected. naturally, eu membership does not only cover free trade. it also means applying the full body of eu legislation, a key component of which is freedom of movement. on the one hand, financial institutions in london have bene