With polls on whether Britain will leave the European Union, the voters seem to be divided between staying and going. But for big banks in the City of London, there is a little disagreement going on: they don’t want to risk going it alone.
London, one of the major financial gateways around the world, is the biggest and busiest in Europe. It competes with Wall Street for being a place for international trading of bonds, commodities, currencies, and stocks. In terms of extremes, economic and financial crisis from Brexit (or British exit) are not causes for concern among banking executives. But even with just a minor shock, it may force major global banks to re-evaluate their European operations — a challenge that may affect basic transactions.
“London is a global center; it’s also a European center — one is contingent on the other. Financial institutions come into London from third countries, like the U.S. and from the rest of the E.U., so this creates this huge ecosystem at which London sits at the center,” says Alan Houmann, the managing director of the European government affairs for Citigroup.
The EU Membership Terms
Prime Minister David Cameron is currently negotiating changes to Britain’s membership terms before the summit meeting with the European leaders this coming February 18 and 19. Along with his counterparts in Europe, the prime ministers seek to secure the status of Britain in financial hierarchy as he looks for assurances that banks and other firms won’t be discriminated.
He is currently in a political minefield. Although Germany and France wants Britain to continue to be a member of a club that helped promote peace and stability in the region for many years, other members are concerned about granting one country too many deals and breaching the basic principles of unity.
Effect on British Industry
Various British businesses benefit from buying and selling in the European Union. And although immigration is currently an issue, British companies benefit from employing any citizen of the European Union.
While bankers do not like the idea of rafting the regulations, many of them believe that a Brexit could cause problems. A major concern is that it could result to an economic downturn and a plunge of currency. According to the City of London Corporation, the financial services industry represent over 14$ of the nearly $3 trillion economy of Britain.
If Britain were to leave the European Union, bankers fear that they might no longer have the right to offer services (securities trading, investment management, and foreign exchange) to clients that are in other European countries.
Big international banks, however, believe that they would survive a Brexit. Most have operations in the Eurozone that they could expand over time. Some are already moving their operations from London in the aim of reducing costs. Credit Suisse, for instance, has opened a branch in Dublin. Viewed in this perspective, a Brexit might not be that risky to any specific bank as it is to London’s role as a global financial center.