Why is London a global banking city? In short, because of history. London was the wealthiest city on earth during the Industrial Revolution, and global capital still makes London its home. We have the services that bankers need, we have the skills and importantly, we have stability of currency and of institutions. For historical reasons, English law is the preferred medium for financial transactions, and British lawmakers have generally been very obliging to the sector.
Brexiteers claim that all this can continue – they point to the fact that London remained a financial services hub despite not adopting the Euro currency 15 years ago.
Much will depend on the terms that negotiators can reach. If access to financial markets is prioritised in negotiations, and companies can still raise capital and invest in London-based firms without barriers, then financial services stand a decent chance. However, there are few signals that the government intends to prioritise banking in its discussions with the EU. And the spectre of a “hard Brexit” without freedom of movement may make it difficult for banks to source the skills they need. It is not clear whether the government is posturing ahead of tough negotiations with EU Member States, and Ms May is certainly not showing her hand ahead of those discussions.
The decisions that determine London’s fate will largely be made abroad. Barclays is the only major British investment bank with a global reach. The rest of the sector in London comprises the regional arms of foreign banks – particularly American banks, but also Swiss, German and Japanese. Will they continue to base themselves here? The UK government will have to demonstrate that it is in their interests to stay and that regulators understand the sector and its needs.
Other cities are keen to take up the mantle of Europe’s banking capital. Frankfurt has a thriving sector, but has struggled to persuade bankers that it is an exciting place to live. The socialist government in France does not seem keen to grow Paris’s banking sector, but that may change if a more pro-business President is elected next year. The Paris city administration has already run an advertising campaign suggesting that banks relocate to the La Defense zone. Milan probably has the strongest case – it has the skills, it is in the heart of Europe, both geographically and culturally, and it offers a good lifestyle and excellent connectivity. Prime Minister Renzi’s government has pushed through business-friendly reforms, and promises to go further if it wins the reform referendum in December.
London needs to make the case to decision-makers around the world, that Britain remains a global banking hub. Mayor Khan has effectively prioritised his “London is Open” messaging campaign. Now the UK government needs to back up those efforts and demonstrate that it understands and prioritises the financial services sector. Or, it needs to start making plans for an alternative cash cow to keep HM Treasury afloat.
Advertisement aimed at convincing bankers to relocate.