London and the banking moves ahead

BREXIT & ECONOMY

Dozens of banks in the City are asking for a license to operate from European capitals - The lack of the chapter on services in the agreement with Brussels is worrying and the lack of reciprocity weighs heavily. The effects of Brexit are beginning to be felt in the City of London. More and more banks are relocating offices and staff across the continent, to the benefit of European financial centers such as Frankfurt and Paris.

London and the banking moves ahead
CdT Archive

London and the banking moves ahead

CdT Archive

The German Ministry of Finance has just made it known that the Frankfurt market is growing beyond expected: 55 banks and financial operators have applied for a license to set up business in Germany and three business licenses have been granted to insurance companies.

Even more optimism in France, where the Central Bank governor said that Britain’s exit from the EU has already brought 2,500 jobs to Paris and 50 British institutions have transferred € 170 billion in assets. «We are expecting more transfers and we expect their numbers to increase this year» said François Villeroy de Galhau.

Bank of America, for example, has already moved 500 people to Paris to an office that will accommodate 1,500, JPMorgan is doing the same. In addition to Frankfurt and Paris, Dublin, Luxembourg, Amsterdam, Brussels and Milan are also working hard to attract the big names in finance, from Morgan Stanley to Goldman Sachs.

The reason for this mini-escape from the City is that services, which also account for 80% of British GDP, were the big ones excluded from the trade agreement signed on Christmas Eve between London and Brussels. Financial services have been completely neglected, despite the importance of a sector that is worth 132 billion pounds and brings 76 billion into Her Majesty’s tax coffers each year.

In view of Brexit, the sector had asked for «passporting», which would have allowed them to continue operating in the EU without the costs and procedures of having to open a branch in each country. It was not granted.

As Catherine McGuiness of the City of London Corporation bitterly pointed out, during the negotiations between the UK and the EU much more time and attention was devoted to the fisheries sector, which accounts for 0.1% of UK GDP, rather than financial services. which account for over 7%. «They took the City for granted, thinking it could do it on its own,« he said.

The result is that UK banks have already moved around £1.5 trillion of assets and thousands of jobs to EU capitals. What happens now?

Now London is in a sense at the mercy of Brussels. It unilaterally allowed EU banks to operate in Britain, but the EU did not reciprocate. With the hope of «passporting» over, it is now up to the EU authorities to decide whether and when to grant at least regulatory equivalence, which would facilitate British banks’ access to the European market by establishing that the rules are indeed equivalent. They have six months to do it, and apparently they are in no hurry.

EU Commissioner for Financial Services Mairead McGuiness warned that it will take time for Brussels to establish the new rules, because first she wants to verify the intentions of London, which could initiate a deregulation and choose to become a «Singapore on the Thames». In fact, the EU has no incentive to do the City a favor.

«Jobs and investments will continue to leave the City for the EU due to Brexit» McGuinness said.

«This is just the beginning agrees Gianluca Minieri, number two in global trading to fund manager Amundi. - Brexit was a sensational own goal for the United Kingdom».

How does London see all of this? Minimize. Chancellor of the Exchequer Rishi Sunak has promised a «Big Bang 2», referring to the boom period of the financial sector in the 1980s.

The government underlines that the feared exodus from the City did not take place. So far fewer than 10,000 bankers have moved away from London, while a study by TheCityUK predicted a loss of 75,000 jobs.

The problem is that it will be a slow-moving Brexit. In the long years of negotiations between London and Brussels, many banks obtained licenses and rented offices in European cities, but waited to relocate staff until the agreement was signed. Now that Brexit is a reality, the exodus started in dribs and drabs could accelerate and, in a few years, reach the dreaded threshold of 75 thousand.

Nobody foresees the emptying of the City or Canary Wharf: London will remain a great international financial center. The risk is that you become a little less rich, less important and less attractive. Certainly less European.

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