(Corrects title of IDA International Financial Services chief)
* Central bank indicated high regulatory bar -sources
* Ireland lacks specialised supervisors for risky trade
* Dublin prefers insurers, fund managers, support services
* Bank bailout in 2008 cost Ireland 40 pct of GDP
* GRAPHIC - Banks' Brexit dilemma tmsnrt.rs/2ey4wqb
By Anjuli Davies and Padraic Halpin
LONDON/DUBLIN, Nov 22 Ireland has signalled to
several large investment banks it would be reluctant to host
large trading operations, banking sources told Reuters, despite
Dublin's desire to attract financial sector jobs from London
after Britain leaves the EU.
This reticence, linked to Ireland's painful experience of a
banking crash in 2008 and subsequent international bailout,
means Dublin is unlikely to become a major destination for what
is regarded as some of the banks' riskiest business.
Ireland's central bank has indicated in talks with the banks
that they would face high hurdles to win regulatory approval for
such operations, which involve huge sums when compared with the
relatively small size of the country's economy.
"Ireland is being very realistic about what it can and what
it wants to do," said one source at a large global investment
bank, speaking on condition of anonymity as the discussions are
private. "If you've come from all the troubles Ireland has, you
want to be very careful about taking on risks."
The largely U.S., British and Swiss investment banks are
working out how to secure access to the European Union when
Britain leaves the bloc. The main question is where to trade and
clear European securities, euros and other market activities
controlled by EU regulation.
Such trade carries a lot of risk and large balance sheets,
meaning regulators must supervise the banks' trading models
closely. This, along with the scale of the business, has
prompted the cautious response from Dublin, according to the
A spokeswoman for the Irish central bank said there was no
blanket policy of turning certain types of business away. "The
central bank is open to engagement with any firm wishing to
obtain an authorisation," she said.
However, another banking source said Dublin had specific
types of financial business in mind. "Yes, Ireland want
insurers, asset managers, back office functions ... but they
don't want big balance sheet risk. They just don't want to take
on that kind of risk and feel that they don't have the
regulatory bandwidth to do that," the source said.
Reuters asked the five large U.S. banks as well as Barclays
and Credit Suisse, who have some operations in Ireland, whether
Dublin was still a contender. All of the banks declined to
Until now, global banks have always put the bulk of their
European markets businesses in London, which is by far the
largest financial centre in the EU.
When Britain leaves the EU financial firms based there are
likely to lose their "passporting" rights, an EU system that
lets them operate across the bloc but under the supervision of
just one member state's regulators.
That's prompted the likes of Dublin, Paris, Amsterdam,
Luxembourg and Frankfurt to encourage banks, insurers and fund
managers to set up entities in their cities that can get
licences to operate across the EU. Ireland is also presenting
itself as the only English-speaking country that offers a base
in the euro zone and a future in the EU.
Kieran Donoghue, who heads up International Financial
Services at IDA Ireland, the state agency charged with
attracting foreign investment, has described Brexit as a
"historic opportunity" for the financial sector.
Ireland is already one of the world's largest centres for
back office banking functions such as settling transactions,
many of them farmed out from London. On top of that, it hosts a
growing financial technology industry.
But it has a population of less than five million and its
annual economic output is only around 10 percent of neighbouring
Britain's. That left it vulnerable when disaster struck in 2008.
Irish taxpayers had to stump up 64 billion euros (now $68
billion) - or almost 40 percent of GDP - to rescue a banking
system brought down by a property market crash.
The cost of staging the biggest public rescue of banks in
the euro zone forced the state to take the 85 billion euro
bailout in 2010. Conditions of the three-year EU/IMF programme
included deeply unpopular austerity polices.
A REAL WORRY
Investment banks with large sales and trading operations,
which buy and sell foreign exchange, debt, equities and other
financial instruments for clients across Europe, require large
balance sheets, specialised talent and regulators who are
familiar with sometimes esoteric financial instruments.
"Our sense is that the appetite in Ireland is not that high
for balance sheet banks," said a third source at a global
Irish central bank governor Philip Lane told Reuters in
October that his office had seen a jump in inquiries from
financial services companies since Britons voted to leave the EU
in June. However, he doubted activity will cluster in a single
euro zone city because none offers a close substitute to London.
Central bank officials have also publicly said the
authorisation process for financial services firms wanting to
set up in Ireland cannot be short circuited, and that board and
management positions would need to be located in the country.
"A lack of specialised supervisors and the risk of
sophisticated investment banking to the state makes Irish
regulators reluctant to host such banks in Dublin," said a
person familiar with Irish central bank thinking.
"It has been a worry for a while. It is difficult to find
enough regulators. A growth in highly sophisticated financial
services companies would be a real worry."
Under EU "bail-in" rules introduced since the global crisis,
investors and uninsured depositors will be have to fund any
future bank rescues rather than governments.
Nevertheless, the source still said the "risk to the
taxpayer" was a second reason for concern.
The European Central Bank now oversees the largest banks
operating in the euro zone, rather than member states, but it
still relies on staff from national supervisory authorities to
help carry out its work.
Bank executives say that as well as meeting the requirements
set by Irish regulators, they would have to satisfy their
home-country authorities that any operations they sited in
Ireland were adequately capitalised and supervised.
"It's not just down to the Irish regulators. It's down to
the British, and the U.S. and the continental regulators," said
another banking source.
This year Credit Suisse became the first global
investment bank to set up a trading floor in Dublin, with around
100 jobs offering prime brokerage services. About 40 are trading
positions, with the rest in support functions.
That process for a very specific and narrow trading licence
took between three and four years from initial planning stages
to approval, according to a source familiar with the process.
Banks would want to be able to move other, larger types of
trading operations much faster, given Britain is expected to
leave the EU in 2019.
U.S. bank Citigroup has denied a report it was
planning to move up to 900 jobs from London to Dublin as a
result of Brexit, though it already has a large unit there
providing some banking services. But like other U.S. banks, it
would need to host large trading operations in a separate entity
known as a broker-dealer under American regulations.
($1 = 0.9426 euros)
(Additional reporting by John O'Donnell and Carmel Crimmins,
editing by Rachel Armstrong and David Stamp)