Work detail

Impacts of Brexit referendum on European banks: evidence from Country-by-Country Reporting

Author: Mgr. Petr Moravec
Year: 2022 - summer
Leaders: doc. Petr Janský Ph.D.
Consultants:
Work type: Economic Theory
Masters
Language: English
Pages: 84
Awards and prizes:
Link: https://dspace.cuni.cz/handle/20.500.11956/174029
Abstract: In the negotiation period of Brexit in the years 2016-2019, banks in the UK had to plan their
activity based on the expectation of whether they would have passporting rights in the future
or not. The referendum’s consequences may foreshadow what the actual Brexit will entail.
This master thesis investigates the impact of the Brexit referendum in 2016 on the banking
activity of the 45 largest European banks during the negotiation period. I use gravity analysis
for inter-country transactions, and a brand-new ”Synthetic Difference in Differences”, together
with Synthetic Control and standard Difference in Differences, for intra-country transactions.
Although all of these methods were used in the literature in the context of the Brexit referendum,
the Country-by-Country Reporting (CbCR) dataset that I use has not yet been used in such a
context. I use turnover reported in CbCR by European banks as a proxy for banking activity
in the years 2013-2019 and, thus, have four pre-treatment years (i.e., 2013-2016) and three posttreatment years (i.e., 2017-2019). Using the gravity model, I discovered empirical evidence that
banks reported lower turnover since the Brexit referendum in their partner countries by between
14.5% and 44.6% relative to their domestic country. Yet, banks that have British headquarters
did not report different turnover abroad (according to gravity) or in the UK (according to the
Synthetic Difference in Differences) compared to the rest of Europe. According to my findings,
the referendum did not have a significant impact on British banks and it is likely that the real
Brexit, that is, the withdrawal in the 2020, has had more adverse consequences.
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