A fifth of EU banking may shift here after Brexit

Almost a fifth of wholesale finance activity within the European Union could shift to Ireland after Brexit, a Brussels-based think tank has projected.

It would make this country a major European financial power house.

London currently dominates the sector, which includes large-scale banking for other banks, large corporations and finance houses.

The Bruegel think tank said 2pc of the EU’s wholesale activity is currently here, versus 90pc in the UK, but this share could increase to up to 15pc or 18pc once it leaves the EU.

The report estimates that around €1.8 trillion of UK banking assets will be on the move following Brexit.

About 35pc of London wholesale banking currently relates to clients in the other 27 EU member states. That varies from about a fifth for UK-headquartered banks, to a third for US and half for EU banks. “Thus, about €1.8 trillion, or 17pc, of all UK banking assets might be on the move as a direct consequence of Brexit,” the report states.

It also claimed that about 10,000 banking jobs and 20,000 related professional services roles could be up for grabs by other EU capitals as a result, with Dublin, Frankfurt, Paris and Amsterdam among the cities listed. However it also notes that other cities, including Brussels, Luxembourg, Warsaw, Milan and Vienna could also feature.

The report presents two scenarios for capital markets services in the wake of Brexit – an integrated wholesale market, or one that fragments along national lines.

“In both scenarios, the UK’s share of the total European wholesale market drops from 90pc to 60pc because of Brexit,” it notes.

“The starting point is that financial firms with a MiFID passport can serve EU27 clients from anywhere in the EU27, just as they currently do from London.”
The report, co-authored by André Sapir, Dirk Schoenmaker and Nicolas Véron, stated that in the fragmented case, Frankfurt, given the fact that it already hosts the biggest European operations of the US investment banks outside of London, and is home to the European Central Bank, will become the main centre with 45pc of the EU27 wholesale market.

Paris, which is home to the European Securities and Markets Authority and several large banks, may cover 20pc, and Dublin and Amsterdam might cover 15pc and 10pc respectively.

In the scenario that assumes integration, there is less need for all activities in one location, therefore the industry could be more geographically spread across the bloc.

In this case, 35pc of wholesale finance would be in Frankfurt, 12 to 20pc in Amsterdam, Dublin and Paris each, with Dublin getting 18pc.

“The fact that several countries are vying to attract business from London suggests that they hope to reap the benefits from having larger financial sectors, not least in the form of additional tax revenue,” the report noted.

“At the same time, countries with larger financial sectors face higher potential costs associated with potential public expenditure in case of financial turmoil. These potential costs would be shared by all euro-area countries in a full banking union, but not in an incomplete banking union, as is currently the case.

“It will be a challenge to keep a sense of the balance between the benefits and potential costs across euro-area countries.”

The report comes a day after a senior French politician on a visit to London to poach bankers, warned Britain will lose crucial financial access rights to the EU. Valerie Pecresse, president of Ile-de-France, said Brexit is opening up “fierce competition” between Europe’s capital cities vying to take business from the City.
Article Source: http://tinyurl.com/kbwqb42