UK’s London as a Global Financial Center After Brexit & ECB Latest Move: Does What Goes Up, Eventually Comes Down?

Does “What Goes Up, Eventually Comes Down?” UK’s capital,, London, has for centuries been known a global financial hub. But with Brexit, it looks increasingly that the days of that status is numbered. UK media, The Independent reports (source) with the headline: “Brexit: EU to give UK banks new incentive to leave London, say officials.”

According to the Independent, Banks in London that relocate operations to the euro zone after Brexit are likely to be spared a lengthy entry test by regulators, making it easier for them to shift, according to two officials with knowledge of the matter. The European Central Bank, the euro zone’s banking supervisor, has had many inquiries from British-based banks wanting to come under its watch, prompting it to look at fast-tracking licence applications, according to the sources. It is set to temporarily waive an examination of the financial models that big retail lenders and investment banks use to determine the risk of a default on a mortgage or derivative – as long as the banks meet the standards of British regulators, they said. Any such decision by the ECB would be chiefly for practical rather than political reasons and would, said one of the people, aim to minimise disruption to European finance after Britain leaves the EU.

UK’s captal London, has a long and proud history of being a global financial center, along with more recent development of New York, Hong Kong and Singapore. The following from wikipedia is about the UK’s banking industry:

Banking in the United Kingdom can be considered to have started in the Kingdom of England in the 17th century. The first activity in what later came to be known as banking was by goldsmiths who, after the dissolution of English monasteries by Henry VIII, began to accumulate significant stocks of gold.

With the outbreak of war banking flourished and the so-called ‘’Big Five’’ commenced a series of takeovers and mergers. These banks, WestminsterNational ProvincialBarclaysLloyds and Midland were eventually reined in by government control.[citation needed]

Between the wars, there was a decline to match the general depression of the time. But the banks fought back by taking action to recruit less wealthy customers and by introducing small saving schemes.

It would take until 1950 for real recovery where there was a huge increase in provincial branch offices and the emergence of the high street bank. Relaxation of some controls over mergers and acquisitions led to consolidation in the 1960s in which the Big Five became the Big Four, along with the takeover of several regional banks (MartinsDistrict BankNational BankGlyn Mills and William Deacons). At the same time the government launched a new banking service, the National Girobank. In 1976 the Banking Act increased the supervisory role of the Bank of England.

Introduction of computing, credit cards and many new services continued to drive the expansion of banks and as deregulation was introduced competitiveness increased. Banks improved services, refurbished antiquated premises and brought in further technology such as ATM.

Currently banks in the United Kingdom have refined their services with most offering very similar services being distinguished only by offering different interest rates. Indeed, a very recent[when?] trend has been to not advertise interest rates as this avoids the banks having to offer such advertised rates to at least 60% of their customers.

In 2006 the Office of Fair Trading found that the banks were exploiting penalty bank charges on credit cards and has suggested that banks restrict such penalty to a maximum of 12 UK pounds. Penalty charges or Liquidated damages are illegal in UK contract law unless they represent the real cost of a breach of contract incurred through an unauthorised overdraft level or bounced cheque.

This ruling by the OFT had been extended by many customers to their personal bank accounts and subsequently the UK small claims court system was flooded with cases of customers reclaiming these ‘illegal’ penalties. It had been reported[3] that nearly 1.8 million template letters to take the banks to court had been downloaded from the website MoneySavingExpert.com.[4] In October 2009 the Supreme Court overturned previous rulings allowing the OFT to investigate overdraft charges, bringing to an end such claims.[5]Although initially the OFT said it would look at other ways to pursue the matter in November that year it decided not to continue with further action.[6]

Heads of major British banks met with the governor of the Bank of England following days of market pressure on lenders’ stocks. The Bank of England told after the 20 March 2008-meeting that participants had “agreed to continue their close dialogue with the objective of restoring more orderly market conditions.”[2]

As of 11 October 2008, the British banks have short-term liabilities equal to 156% of GDP or 368% of the British national debt, while the average leverage ratio (assets/net worth) is 24 to 1.[7]

The Financial Services (Banking Reform) Act 2013 is calls for a paradigmatic shift toward the principle adopted by the US of risk averse strategies. This manifests itself in the form of “ring-fencing” retail banks to protect consumers and by creating requirements for certain amounts of capital to be retained to act as a buffer against market instability. This reform is set to support the strengthening economy and is a response to the 2008 financial crisis.[8]

Over the past 40 years (to 2014) the banking system in the UK has experienced a ‘dramatic shift’ with total assets increasing from 100% of GDP to 450%, and it is ‘plausible that the UK banking system will continue to grow rapidly’, due to its probable ‘comparative advantage’ in international banking services, with the pre-eminence of London as a financial centre traceable to the 18th and 19th centuries.[9]

In 2014, the FCA revealed that 29 firms had applied for authorisation to become banks.[10] As of Dec 2015, a number of new banking licences have been secured, e.g. by Atom Bank and Tandem bank.[11]

There are also movements in the Capital Markets

Reuters report (source) London is the bloc’s biggest financial market by far, but will be outside the EU from 2019, posing a challenge to the CMU project that had already begun to flag before last year’s referendum in Britain. “The CMU reform programme must be updated so that it can meet the challenge of creating a more autonomous capital market for the EU-27 economy,” the document written by the European Commission says, referring to the remaining EU member states. Britain’s Prime Minister Theresa May has said she wants a free trade agreement with the EU that would include financial services, but the document suggests the bloc wants instead to replicate London’s financial industry as much as it can.

The draft document, due to be discussed by the executive Commission on June 7 ahead of potential publication, said Brexit made it necessary to ensure that businesses remaining in the EU would have access to strong capital markets. “This calls for stronger actions, more effective supervision and making sure that the benefits of the CMU are felt across the entire EU,” it said. “The City of London has traditionally pooled liquidity and provided risk management services for the rest of the EU. The departure of the UK from the single market reinforces the need and urgency of further developing and integrating EU capital markets.”

The following are some news on European Banking, with Brexit:

Dozens of UK banks and financial firms ‘looking at moving to Ireland …

https://www.theguardian.com › World › Ireland

Dec 25, 2016 – Head of agency tasked with attracting foreign investment to Ireland says … Banks andfinancial institutions make up the overwhelming majority of … try to make capital out of the UK voting to leave the EU, Brexit was not the …

Brexit: EU to give UK banks new incentive to leave London, say …

http://www.independent.co.uk › News › Business › Business News

Mar 22, 2017 – Banks in London that relocate operations to the euro zone after Brexit are … Dublin has received 80 such inquiries from financial institutions including banks, according to IDA Ireland, an agency that attracts foreign investment, …

Rising number of UK-based banks consider Frankfurt move

http://www.irishtimes.com/…/financial…/rising-number-of-uk-based-banks-consider-frankf…

German financial centre keen to attract institutions in post-Brexit climate. Mon, Nov 14, 2016, 13:00. The European Central Bank in Frankfurt, Germany.

Spain prepares plan to attract UK financial firms … – Investment Europe

http://www.investmenteurope.net/…/spain-prepares-plan-to-attract-uk-financial-firms-after-…

Dec 13, 2016 – Spain’s financial regulator CNMV will implement a package of measures for UK-basedfinancial institutions that wish to locate their business in …

[PDF]Brexit: the United-Kingdom and EU financial services – European …

http://www.europarl.europa.eu/RegData/etudes/BRIE/…/IPOL_BRI(2016)587384_EN.pdf

Dec 9, 2016 – analytical papers done by research institutes and private sector companies. … attract a critical mass of expertise in financial and other related professional … Table 1: Interconnections between UK and EU financial services.

Banks begin moving some operations out of Britain – Financial Times

https://www.ft.com/content/a3a92744-3a52-11e6-9a05-82a9b15a8ee7

Jun 26, 2016 – The UK could try to adopt the path followed by Norway, which is a member of theEuropean Economic Area but not the EU. But that has …

Germany says rising number of UK-based banks interested in move to …

uk.reuters.com/article/uk-britain-eu-germany-idUKKBN1391BF

Nov 14, 2016 – DE), is seeking to lure financial institutions from Britain, vying with Paris and otherEuropean cities to attract business from LondonEurope’s …

Financial services, the EU, and Brexit – LSE Research Online

eprints.lse.ac.uk/67292/1/Moloney_Financial_Services_the_EU_and_Brexit.pdf

by N Moloney – ‎2016 – ‎Cited by 8 – ‎Related articles

banking stocks; the overtures being made to attract UK financial business away … as part of the EU’scrisis-era institutional governance settlement and on which …

Where in Europe Will Bankers Fleeing London Go After Brexit …

https://www.bloomberg.com/…/where-in-europe-will-bankers-fleeing-london-go-after…

Oct 13, 2016 – After the British stiff-armed Europe this summer, sterling plummeted, … And American and Asian financial institutions might also shift away …. That could attract jobs in asset management, clearing, and higher-level trading.

Brexit: Which EU cities could attract London’s financial services …

https://www.allegisglobalsolutions.com/…/brexit-which-eu-cities-could-attract-londons…

Aug 5, 2016 – What could Brexit mean for workforce management should financial servicescompanies relocate from London?

Bundesbank won’t fight to attract Brexiting financial institutions …

http://www.politico.eu/…/bundesbank-wont-fight-to-attract-brexiting-financial-institutions-2…

May 10, 2017 – Bundesbank won’t fight to attract Brexiting financial institutions … London is set to lose the European Banking Authority after the U.K. leaves the …

This Is How European Cities Are Trying To Attract London’s …

https://www.buzzfeed.com/albertonardelli/from-paris-to-berlin

Oct 26, 2016 – Regulators have said they will speed up the process of looking at applications fromfinancial institutions in Britain that want to move to France.

[PDF]Financial services regulation – what impact will Brexit … – Allen & Overy

http://www.allenovery.com/…/AO_06_Brexit_Specialist_paper_Financial_services.pdf

the EUattracting a wide range of global banks and other financial services providers. Whilst many foreign institutions have UK presences to participate in the …

Rising number of UK-based banks look to Frankfurt – RTE

https://www.rte.ie › News › Business

Nov 14, 2016 – It is seeking to lure financial institutions from Britain, vying with Paris and otherEuropean cities including Dublin to attract business from London …

France demands Euro finance institutions QUIT London after Brexit …

http://www.express.co.uk › News › World

Apr 11, 2017 – FRANCE’S Finance Minister has threatened to make Britain pay after Brexit by demanding European institutions ditch the City of London.

Why a ‘soft Brexit’ is in the interest of both London and Brussels

theconversation.com/why-a-soft-brexit-is-in-the-interest-of-both-london-and-brussels…

Jan 4, 2017 – If financial service companies move out of London, it is unlikely that … Financialcentres outside of the EU would be more likely to attract the …

The Impact of Brexit on the Financial Services Sector | Toptal

https://www.toptal.com › Blog

The UK financial sector’s relevance to the rest of the EU is also pronounced. … Passporting is the process whereby any British-based financial institution, be it …. and whilst London currently provides the perfect set of factors to attract top talent, …

[PDF]The impact of ‘Brexit’ on the financial services sector – Grant Thornton

http://www.grantthornton.co.uk/…/1…/united-kingdom/…/brexit-impact-financial-services.p…

Financial and related professional services in the UK – facts and figures … ability of UK basedinstitutions to export financial services into the EU and may impact future … competing European financial centres may renew attempts to attract key …

Paris calls on London’s bankers to move to France for the food, culture …

http://www.telegraph.co.uk › Business

Feb 6, 2017 – Bankers should leave London after Brexit and move the France for the food, … offensive, aimed at winning business once the UK leaves the EU. … to attract UK firms to Paris have been met with mockery by London’s elite. … “We are not here to force financial institutions to leaveLondon, that is their decision.

[PDF]Life after 50: What Brexit means now for US financial institutions – PwC

https://www.pwc.com/us/en/financial…/pwc-fsi-whitepaper-brexit-article-50.pdf

Mar 8, 2017 – The heart of the matter. Now that Article 50 has been triggered, the UK and EU will negotiate … means, and what US financial institutions should be doing now. ….. several others have sent envoys to attract financial institutions …

Poland to attract 30,000 British jobs to business-service sector in 2017 …

http://www.financialobserver.eu › Poland › Financial markets

Feb 24, 2017 – Poland to attract 30,000 British jobs to business-service sector in 2017 … “Poles were moving to London, now companies from London are … Poland wants the European Bank Authority and other financial institutions to move …

Frankfurt and Paris fight for London banking business post-Brexit …

uk.businessinsider.com/brexit-london-financial-passporting-euro-clearing-banking-fr…

Oct 19, 2016 – The biggest financial centres in Europe outside of London are upping their game when it comes to attracting the business … Since the EU referendum result, chatter has increased that major financial institutions could move …

[PDF]European Union Financial Regulation, Banking … – Policy Network

http://www.policy-network.net/publications_download.aspx?ID=9489

38 – European Union Financial Regulation, Banking Union, Capital Markets Union and the ….. many non-British-owned financial institutions and successfully competes with oth- er financial centres worldwide to attract business (Quaglia 2010).

The Global Financial Crisis: Triggers, Responses and Aftermath

https://books.google.co.th/books?isbn=1317030257

Tony Ciro – 2016 – ‎Business & Economics

The provision of sovereign guarantees to financial institutions allowed UK, … term funding, UK banks and financial institutions would be required to attract a higher … 97 Report on Financial Supervision in the European Union In February 2009, …

[PDF]EU exit and financial services – London.gov.uk

https://www.london.gov.uk/sites/…/eu_exit_and_financial_services_report_final.pdf

UK economies. • London is Europe’s financial hub and a leading global financial … Europeanheadquarters for many companies: 40 per cent of the top 250 …. migrants they want to attract.28 A visa system was also put in place in. Scotland in …

Giant banks may withdraw from UK after elections – Daily Sabah

http://www.dailysabah.com/finance/…/giant-banks-may-withdraw-from-uk-after-elections

May 11, 2017 – As the political rhetoric between the U.K. and the EU has become more … minister, wants to attract financial institutions to Paris from London.

 

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