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Is the Financial Center London Changing?

By Sera Akinci  |  31/01/2017 14:20
With the birth of the modern capital markets and the debt markets, London has become Europe’s financial center. In other words, it has become the Silicon Valley of the financial world. Moreover, the first modern banks in the entire world were established in London. But is this era coming to an end? 



Number of MNC’s and banks such as; HSBC, UBS and Goldman Sachs have stated that they are preparing to relocate outside the UK in the first few months of 2017 whereas smaller banks are making plans to get out before Christmas. The reason behind these plans of MNC’s and larger international banks are to retain their passporting rights and access to single markets. With the Brexit move, they will most likely lose their passorting rights with potential tariff and non-tariff restrictions. It’s not a threat that other EU cities such as Paris, Frankfurt, Berlin and Milan are attracting jobs from London and supporting the competition in the industry but the complication rises when national governments put effort in negotiations of Brexit to build walls across the channel to isolate Europe’s unified financial market in haul, in order to drive jobs. 

So what is the potential impact on UK’s economy? 

It can potentially effect UK’s financial stability. According to S&P, the UK recieves high levels of FDI since joining the EU. In 2015, it reached to 18pc of GDP. Two-thirds of that investment came into the financial services sector, largely through London where foreign banks comprise about half of all UK banking assets. The capital was bolstered to fund the UK’s current account deficit. After Brexit and if banks decide to leave London, the investors might change their directions to different attractive destinations. On the other hand, it is expected for Britain to grow slower outside the EU than if they stayed in. 

With the banks leaving London, it can create uncertainty and chaos and GBP might deteriorate against most major currencies. However, Brexit has just begun and there are still whole slew of reasons and approches to keep Banks in London; Europe’s financial center.
 

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