Banking’s swashbuckling days are behind it and that might be a good thing

London, Tokyo and New York. The holy trinity of high finance.

These three “Alpha World Cities” are collectively known as the global economy’s commanding heights. It’s here, overwhelmingly, that money decides where it will go.

Of course, London now has a little problem. At least some, and possibly a lot, of its claim to commanding height status hinges on the UK’s place as a gateway to Europe for global banking.

And, as you probably noticed, the UK is walking out of the EU.

As with any major decision the prospect of Brexit offers both hazard and opportunity. And one aspect firmly in the former camp is that a lot of European finance is all-but certain to migrate to an EU city. Frankfurt, probably, or Paris.

Should we be desolate at this? Are the tumbleweeds about to start blowing through the deserted canyons of Lombard Street and Canary Wharf?

Well, no, actually, probably not. For one thing London’s claim to the top spot in Europe is not solely dependent on banks. From law to accountancy, shipping to hedge funds, the UK capital has a critical mass of expertise which isn’t all going to head for the EU. London will remain a global city.

For another thing it’s in the right time zone. It also speaks a language Americans understand - up to a point, guv’nor.

But banking faces enormous challenges with or without Brexit. Regulation has increased (stable door, horse, and so on).  So have capital requirements. Banks now have to keep a lot more of their own cash on hand. If they run into trouble again they can use that rather than running cap-in-hand to the taxpayer. Good thing too.   

Too much of central London is now a financial monoculture

But what all that means is that banking’s swashbuckling days are behind it.

The big finances houses will probably return, slowly to what they used to be - essential utility businesses, but businesses concerned with the flow of money rather than of electricity or water. And we might all be safer as a result.

Then there’s fintech. The “blockchain” technology behind the bitcoin cryptocurrency threatens to change the game in banking. No one knows quite how yet, but a lot of the “financial intermediation,” the middleman trade at which the UK has excelled, is on borrowed time. This is the business that blockchain technology will ‘streamline.’

None of this is to suggest that banking will not remain important to the UK, or that Whitehall should not be pushing for the best possible financial deal for London. But chasing banking too hard might just be the equivalent of supporting your local blacksmith back in the heyday of Henry Ford.

There’s another possibly pleasant corollary. Too much of central London is now a financial monoculture, and far too much is more expensive and less interesting as a result. If the sector were cut back a little, London’s long creative history suggests that something perhaps more inspiring and inclusive might grow in its place.

More about the author

About the author

Born and raised in Swansea West, one of the safest Labour seats in the country, David is perhaps unsurprisingly a High-Tory, Euroskeptic Royalist Libertarian with an unhealthy adoration for Ronald Reagan and Margaret Thatcher. As a result he is seldom pleased by anything that ever happens, and always on the verge of quitting the whole jamboree. A former Special Writer at the Wall Street Journal, he knew the crash was coming when he saw a piece about Louis XVI reproduction furniture "for your Winnebago."

Follow David on Twitter.

 

 

 

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