Deutsche Bank Moves Part of Its Services from London to Frankfurt over Brexit
Deutsche Bank, Germany’s largest lender and the world’s 17th largest bank, has acted ahead of Brexit, the UK’s exit from the EU, by moving a substantial part of its financial services from London to Frankfurt.
Nine months before Brexit, Deutsche Bank already moved some of its euro-clearing activities from the UK to Germany, according to a report of The Financial Times.
It reports that the German lender transferred about half of its euro clearing operations away from London, a sign that the British financial services are bound to come under pressure from competitors based in the EU after Brexit.
Deutsche Bank is one of the five largest clearers of interest derivatives. The market of clearing euro-denominated interest rate derivatives was previously dominated by the London-based LCH.
The London Stock Exchange Group, the owner of LCH, has warned that up to 100,000 jobs could be lost if the City of London lost its status as the euro-clearing hub.
“To minimize risk for financial stability, it is indispensable that [the clearing of euro-derivatives] is subject to strong regulation and supervision in full conformity with EU standards,” Olaf Scholz, Germany’s Finance Minister, said last month.
With the Brexit date of March 29, 2019, approaching, political figures have urged direct regulation of central counterparty clearing houses after Brexit to guarantee financial stability.
Nonetheless, Bank of England Governor Mark Carney has made it clear believes London continues to be a “global” financial center regardless of the upcoming Brexit, whereas a major financial center inside the EU would be a “local” one.
“In some circles in Europe there is a greater predisposition to ring-fence financial activities. That could lead to a very large but effectively local financial center in Europe, as opposed to a global financial center, which I believe London will continue to be,” he told Bloomberg, as cited by DW.
“There are real benefits for Europe as well as the UK in having access to what is a global, resilient, and fair financial sector, which is what London is,” he added.
At the same time, Carney admitted that “within nine months we could have a disorderly Brexit stress test.”
He did warn against the threat posed by increasing trade protectionism around the world.
“We can choose between a low road of protectionism focused on bilateral goods-trade balances and a high road of liberalization of global trade in services. The low road will cost jobs, growth, and stability. The high road can support a more inclusive and resilient globalization,” the Bank of England Governor said.
“Taking this high road could help solve the problem of persistent trade imbalances. Bank of England research suggests that reducing restrictions on services trade, to the same extent as those on goods have been lowered over the past couple of decades, could reduce excess global imbalances by close to one half,” he elaborated.
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