No Brexit Banking Boom

BERLIN/LONDON/PARIS (Own report) - Brexit will reduce by one third the EU's share of global capital markets and will shift relations within the EU in France's favor, as was revealed in a recent study on the impact the UK's departure will have on the Union's financial sector. Brexit will therefore reduce the EU's share of global capital market activities to 14 percent - around one third the size of the US and roughly the same as China. France will become number one among the EU-27 - a bit ahead of Germany. The shrinkage can also be attributed to the fact that the EU was unable to induce major banks and other financial institutions, on a large scale, to relocate from London onto the continent. Brussels has tried to use strict regulations, stipulating that financial transactions within the EU may only be conducted by legally independent entities within an EU country. However, the financial sector has limited its relocation onto the continent to only the bare essentials. The anticipated banking boom, for example, in Frankfurt, is not materializing.

7.000 Rather than 200.000

The EU's efforts to persuade banks and other financial institutions to relocate from London to other cities in the remaining 27 EU countries because of the Brexit have so far been less successful than anticipated. Already at the beginning of this year, an analysis of the Bloomberg news agency had revealed that financial institutes such as JPMorgan Chase & Co. or the Deutsche Bank each had planned to relocate about 400-500 jobs onto the continent, barely 10 percent of the quantity announced in 2016. At the time, experts claimed that London would probably lose more than 200,000 jobs in the financial sector. Now experts such as EY, a professional services provider, only predict 7,000-10,000 staff moves to the remaining EU-27.[1] Thus, London will lose less than the Deutsche Bank, which, because of its crisis, has announced it was scratching 18,000 jobs, including possibly 6,000 in Germany. According to recent estimates, the financial sector employs around 700,000 people in London, whereas Frankfurt am Main, which sees itself as a rival to the British capital and seeks to profit from the Brexit, employs around 70,000.

"Less Global, Less Attractive"

Observers warn that the EU could maneuver itself into a dead-end street by trying to force the largest possible sectors of the City of London to relocate. EU regulations stipulate that financial institutions must conduct various financial transactions via legally independent entities in an EU country. According to the European Central Bank (ECB), these regulations have already forced 24 major banks to begin to relocate their EU headquarters from the British capital onto the continent. The ECB expects a transfer of €1.3 billion of assets.[2] The process however, is slow. A few weeks ago, Andrea Enria, Chair of the ECB Supervisory Board, warned that so far credit institutions have relocated much less personnel and functions onto the continent than planned: "Banks should now speed up the implementation of their Brexit plan."[3] Observers point out that the financial branch's foot-dragging is not least of all the result of the run of bad news coming out of the euro zone - ranging from a looming recession, the glaring weakening, for example, of the Deutsche Bank, to the possibility of a new escalation of the euro crisis. The danger is that rushing to erect a regulatory moat around the continent's financial sector will unintentionally make the market less liquid, less global and less attractive, according to commentaries in the USA.[4]

The City is Booming

In fact, London, as a financial center, has in some respects become even more significant. The City has a 43 percent share of the global market, up from 37 percent three years ago, while New York, has a sixth of the world’s trade, down from a fifth in 2016. Next in line are Singapore and Hong Kong, with just under 8 percent each. Switzerland is the second-biggest foreign exchange trading centre in Europe with 3.3 percent of global transactions.[5] The situation is similar in the sector of interest rate derivatives. Whereas London's share has grown to just over 50 percent of the market, leaving New York far behind, which has shrunk to just under a third. The United Kingdom is the only European nation that has more than 2 percent of the market.[6] The UK fintech sector far surpasses that of its European peers. Investments in British fintech enterprises rose 153 percent in 2017, reaching over US $1.6 billion. In 2018, they rose even to US $3.3 billion - 56 percent of the total value invested in that sector in Europe. Economists and commentators are judging that regardless of Brexit, "London’s fintech scene is shining brighter than ever before."[7]

Shrunken Influence

New Financial, the London-based think tank, has now published a study of the consequences the EU-27's financial market's separation from London's financial center. will have. According to this study, The UK accounts for nearly 31 percent of all capital markets activity in the EU - more than France and Germany combined. Post-Brexit EU capital markets will be nearly a third smaller. The EU would then no longer account for a combined share of 21 percent of global capital market activity - nearly half the size of the US - but will be reduced to 14 percent - roughly the same as China.[8] The consequences of such a massive shrinkage on its global influence - and thereby Berlin and the EU's [9] ambitions to become global powers - are evident.

Vive le Brexit

In addition this could have wide-ranging consequences inside the EU. The EU will lose its largest and deepest capital market and the supervisory and regulatory expertise, according to New Financial's study. The EU's economy will be even more exposed to a struggling banking sector. At the same time, large parts of EU capital market activities will effectively be based offshore in London.[10] Not least of all, there will be a considerable shift in influence within the EU-27. The UK currently dominates EU banking and finance and is the largest market in the EU. After Brexit, this position will shift to France with its 24 percent share of total capital market activities of the smaller Union. Germany will be second with its 19 percent. The authors of the study comment this order of succession with the slogan - "Vive le Brexit!"


For more information to this theme see also No "New London".


[1] Lionel Laurent: Move Your Bankers to Paris or Frankfurt... Or Else. 23.08.2019.

[2] Banken bringen wegen Brexit Billionenwerte in Euro-Raum. 28.08.2019.

[3] EZB-Bankenaufsicht mahnt Geldhäuser zur Eile bei Brexit-Vorbereitungen. 04.09.2019.

[4] Lionel Laurent: Move Your Bankers to Paris or Frankfurt... Or Else. 23.08.2019.

[5], [6] Tim Wallace, Harriet Russell: London more dominant than ever in currency and derivatives market as UK defies Brexit blues. 16.09.2019.

[7] Why London's Fintech Scene is Largely Unfazed by Brexit. 17.09.2019.

[8] Panagiotis Asimakopoulos: Report: what do EU capital markets look like on the other side of Brexit? September 2019.

[9] See also Lust for Power.

[10] Panagiotis Asimakopoulos: Report: what do EU capital markets look like on the other side of Brexit? September 2019.