It’s not even halftime in the Brexit ballgame (indeed, we’re still in the pregame warm-up)—but already there are a number of takeaways worth noting:
- Prudential oversight is, perhaps ironically, accelerating the exodus of banks out of London. The European Central Bank rightly wants to be sure that banks based in London will be prepared for Brexit, whatever form it takes, hard or soft. But reportedly, some banks are going a step further to demonstrate their preparedness (to the ECB and, I would imagine, to investors), by moving personnel out of the UK now to establish their necessary operations. Often, firms stall when it comes to reforms, especially with moves like these that will cost more capital; but here we won’t see much “just in time” compliance.
- The Question of Hard or Soft Brexit may be entirely irrelevant for financial institutions by the time a political decision is made. Precisely because financial firms are already relocating, the issue of a “soft” or “hard” Brexit may end up being a moot question for the City of London’s financiers when Britain and the EU finally agree on the terms of their divorce. Instead, the economic and political uncertainty of Brexit may move more squarely to trade in goods, like cars.
- Frankfurt is winning the top spot for banks for more reasons than you’d think. Frankfurt’s appeal isn’t just its clearing and payments infrastructure, though it helps. It’s also the discrete comparative advantage it holds from banks’ point of view over other countries, from employment law over France (perhaps even despite codetermination!) and compensation rules over Amsterdam.
- Job losses in London are shaping up to be significant, but only in the aggregate. Okay, depending on who you ask, maybe this isn’t “totally” unexpected, ergo the *. But it’s not totally obvious either, so I’ll give it a half. My back of the envelope calculations suggest that financial institutions based in London are moving about 5% of their staff to continental Europe, with very rare outliers just possibly hitting the 20% threshold. This is not a mass exodus—but it will have an impact on London’s tax revenue and, conversely, the EU’s regulatory power. What could, however, deepen problems is whether other servicers of the companies—think law firms and accountancies—move staff to the Continent to accommodate their clients (and EU authorities).
More Brexit lessons? Let me know @ChrisBrummerDr.