ALEX BRUMMER: ‘Doomsayers ready to declare City is on sliding slope to decline’
The International Monetary Fund is being unhelpful again. It now acknowledges that Britain is resilient and so far has steered clear of the economic shoals presented by Brexit and has turned critical attention to the City’s leadership as a financial centre.
Anyone reading about Brexit in the Global Financial Stability Report might conclude that the Square Mile escaped the Great Fire of London, two world wars, the gold standard and the financial crisis but finally threw in the towel under the weight of reams of pages of euro-regulation and the ambition of other European capitals.
Indeed, haven’t the likes of Goldman Sachs, JP Morgan, Barclays and Lloyds’s of London insurance market already headed for the exit?
Financial capital: The IMF has turned critical attention to the City’s leadership as a financial centre
Such is the wishful thinking of doomsayers ready to declare the Square Mile is on the sliding slope to decline and obliteration.
Talk to those most intimately involved in day-to-day financial regulation and stability and the picture is remarkably different.
The first and most significant point that is that while Paris, Frankfurt, Brussels or even Dublin may have their minor victories, when small teams of traders are moved offshore as Brexit insurance, most of Europe doesn’t want what Britain has.
Being a world financial sector carries enormous trading risks. It requires financial institutions to be generously capitalised but it also relies upon the commitment of central banks/and governments to stand behind those risks.
As we know from the eurozone crisis Germany may be swimming in reserves but history inures it to risk taking.
France simply doesn’t have the financial infrastructure to compete and its high taxation economy means it is uniquely unattractive to the finance sector. As for Dublin and Brussels they are simply not in the game.
Remember when Irish banking almost vanished below the waves in 2008? It was the UK government, not the eurozone which rushed to Dublin’s side with emergency credits.
Put it another way is there another jurisdiction in Europe where the government would be prepared and understand the necessity for a banking system that is four times the size of the nation’s total output? The thought is ridiculous.
Secondly, we have the bizarre argument coming from some European politicians that London, outside the EU, cannot possibly be the vortex, or as it is at present, the main centre for clearing and settling transactions in euros such as interest rate swaps.
In effect such thoughts represent a narrow ‘euro’ nationalism which flies in the face of multinational trade and globalisation.
When some years ago Canadian authorities decided that Toronto’s financial system did not have the capacity, experience or the depth to clear instruments denominated in Canadian dollars it decided to use LCH Clearnet as it principle exchange.
Indeed, London is used by banks around the world, including those on Wall Street, to clear dollar and other foreign currency transactions.
You want the best deal and the maximum liquidity you go to the markets best able to provide not an overpriced, illiquid flag carrier.
Finally, there is the vexed question of the quality of regulation or as Europeans like to call it ‘equivalence.’
Give both sides in the Article 50 negotiations start from exactly the same place and given that many rules were created by the UK anyway because it has the most complex markets it ought to be a non-issue. All that is required is some kind of arbitration or disputes procedure when there is a problem.
Sounds simple doesn’t it? Then why except out of bloody-mindedness make it difficult.