Many inside and outside of banking want to see the banking 'cartel' broken up
Michael Mainelli, director, Z/Yen Ltd says banks threatening to leave the UK is more about bonuses and taxes and not government threats to break the banks up.With governments breathing down banks' necks about bonuses and personal taxes and breaking up their investment banking and retail business units, the City is awash with speculation as to which of the banks will be the first to relocate from London to other locations.
While there are an increasing number of financial centres that are vying for the coveted crown currently held by London and New York as the world's leading global financial centres (Z/Yen's Global Financial Centres Index 7), a lot has to happen before emerging centres like Shanghai, Dubai, Singapore or Beijing, come anywhere close to boasting the infrastructure, legal framework, well-educated workforce and liquidity that London and New York boast.
The UK's "casino-style" financial culture has been heavily criticised in the wake of the financial crisis and the new coalition government wants to wean itself off its dependency on financial services, which accounts for an estimated 13% of GDP.
A Commission on Banking, set up by the UK government, is currently studying whether big banks should be broken up and their investment and corporate banking operations hived off from their retail operations. This seems premature given that if the UK goes ahead with this and no other country follows in its footsteps, it could put itself and banks that are headquartered in the UK at a significant disadvantage.
Recently, Barclays, Standard Chartered and HSBC, which are universal banks (retail, corporate and investment banking) have all hinted that they may move their headquarters overseas if the UK government forces them to split their operations.
However, Michael Mainelli, director of Z/Yen, which publishes the Global Financial Centres Index (GFCI), said the banks had been "privately chatting" about leaving the UK long before the government appointed the Commission. "Personally," he said, "I think this is about bonuses and personal taxes, not reforms."
While the big 12 banks may be against breaking up their retail and investment banking operations, Mainelli says not all banks hold that view and that there many inside and outside of banking that are interested in breaking the "cartel" up a bit.
In the meantime we should know by the 20 September, what impact government threats about bank bonuses, taxes and breaking up banks is likely to have on London's standing as a leading global financial centre. That is the date that Z/Yen publishes GFCI 8. It should make for interesting reading.
Date Posted:8th September 2010