Brexit and the Banks
(Photo from : The Independent)
London’s banks are just one of the cogs of the financial services wheel. The City is central to the functioning of some international markets. London is a global leader in services such as foreign exchange trading and cross-border bank lending. It has more bank head offices than anywhere else in the world. Reportedly, these banks employ approximately 150,000 people – over a quarter of these have foreign passports – and pay around £65bn a year in tax.
Chief Exec of the British Banker’s Association, Anthony Browne, recently stated in The
Observer, that banks were planning to move out of the City. He wrote: “Their hands are hovering over the relocate button”.
It is believed that many banks have project teams designated to post-Brexit strategy. Mr Browne believes that smaller banks may move by the end of the year, with larger banks moving in the first quarter of 2017.
The issue with the majority of reporting on this, is the phrasing. Mr Browne uses the word “relocate”; other news titles have used “exodus”. Currently, this is not the case. Although banks may – and likely will – move some operations to another European location, it is hard to believe there will be an en-masse evacuation of the City.
An FX analyst, at Bank of America Merrill Lynch Global Research, says we don’t know the consequences yet, as “article 50” still hasn’t been invoked. Although the uncertainties are very relevant, the banks have not changed their behaviour yet. Furthermore, there will be significant economic impacts, if the financial sector were to move from London.
Moving the banks from the City could impact the EU just as much as the UK.
Any barriers to cross-border banking that are created, will cause inefficiencies for Europe. There are significant benefits of financial services clustering. London offers extremely close proximity to customers. Over 80% of hedge fund assets managed in Europe and around half of investment banking activity is conducted in London. Moreover, London is the centre of European private equity funds.
The City also has an exceptional quantity of highly-skilled labour. ING’s head of Financial Markets said: “even after Brexit, London has and will continue to have a deep labour talent pool”. This was after ING shifted some traders from mainland Europe to London in recent weeks.
Moody’s (ratings agency) has pointed to “equivalence”. This is where banks can access European markets, if they prove regulation is just as tough. However, these agreements may be difficult to come by.
What does this mean for students?
Labour markets are constantly being redesigned. As with all industries, we need to be aware of these changes and adapt as required. However, don’t be too alarmed yet by Mr Browne’s “relocate” comments. There are no certainties of the exit agreement yet.
By Ryan McCarthy