Will Brexit threaten the City of London’s status as a global financial hub? As the smoke clears on the vote to leave the EU, it’s becoming ever clearer that the answer is no, says Dominic Elliott. Sure, the UK’s financial sector may well have to cope with extra regulation, higher costs and greater capital requirements. But even if the very worst happened, and London-based banks lost the passporting rights that let them sell services across Europe from the UK, the fallout would probably only affect one in ten financial sector workers. Trade in euro-denominated securities might well move to Frankfurt or Paris, but lots of other business would stay. That’s because: a) the costs of upping sticks might well exceed the Brexit-related costs of staying put; b) there’s no single city that “offers a neat alternative to London”; and c) because of “the cluster effect. It’s not so much that banks like to be near their rivals. It’s more that it makes sense to be close to clients.” Insurers and asset managers – two crucial kinds of customer – are unlikely to be going anywhere; nor are blue-chip companies. For now, the wise move for banks is clear: “do nothing” and carry on. (Dominic Elliott, Reuters BreakingViews July 2016)
We have got it all wrong. Banking was supposed to be a service, not the Britain’s biggest, richest industry. Nor was it ever originally intended that the financial tail should wag the dog, the dog being the greater economy. We have seen too many greedy shenanigans that have had horrible effects on ordinary citizens. We all know this. So maybe some winnowing wouldn’t be a bad thing. If there were significant unemployment of bankers, those still in work might be more careful about their trades. But what we really need is for banks to concentrate on lending for decent honest enterprise and become community banks once again. Let the shady, greedy types depart to the Continent if they wish.
I have to declare an interest. My oldest son works for a City bank. I certainly don’t want to see his company moving to, say, Frankfurt, which may have many positive points about it, but they are invisible to the writer. My next door neighbour, also a banker, while we were talking about this subject, told me he didn’t think it was an issue – by leaving the European financial system and not adopting the euro, Britain had in effect been out of Europe for years. This from a banking point of view. The common ( English) language was the thing that would keep the banks together in one place.
In the long term, it will be rural areas- areas that suffered mostly from Brexit- that will suffer most from it. This is because a very high proportion of their trade is with the EU. In contrast, London and the commuter belt has good trading links with the wider world, protecting it somewhat from Brexit or a Eurozone downturn. I wouldn’t worry about the City; as usual, it’s the working class who will bear the greatest burdens.