Will a Brexit see the City of London crumble?

The City of London is the most vulnerable part of the UK economy in the event of a Brexit. The UK’s trade surplus in financial services is about £60bn ($85bn), of which roughly one-third is with the EU.

If, in a June referendum, the UK votes to pull out of the EU, the biggest concerns would be over the likely loss of passporting rights – which allow UK-based firms to sell across the union – and the loss of euro-denominated business. 

On the other hand, few expect that the City’s broader international role would be much damaged. The advantages of its language, legal system, time zone and skill set would remain and major businesses such as foreign exchange and securities trading, asset management and insurance would continue to be strong. 

In the event that the EU came up with a stiff new regulation such as the financial transactions tax, it’s conceivable that the City’s offshore role could even be enhanced – after all, the Eurobond market was born due to prohibitive US tax laws. 

But it’s a big 'if'. Banks and major financial firms are therefore mostly united in their view that the status quo is the best option. HSBC has said that about 1000 of its 5000 global banking and markets jobs could move to Paris in the event of Brexit, although this has not prevented the bank from confirming that its headquarters will stay in London.

This then is a very rare occasion, when the sentiments of the banks are almost certainly in line with those of the average British voter: i.e. sticking with what you know is usually the best option. 

All the same, opinion polls, like markets, will be volatile over the next few months and the leave campaign will definitely see its share ratchet up in the final few days. 

But however dissatisfied the UK electorate is with Brussels, a mood of common sense and self preservation usually comes over most people when they enter a voting booth. For that reason, a Brexit is a long shot. 

Yet after June, if the UK, as expected, is still in the EU, this still leaves the EU facing a mountain of problems it seems incapable of solving – a migration crisis, a halfway house currency system that does not function across such a wide area, and an unaccountable bureaucracy in Brussels. British exceptionalism is clearly an irritant to the other 27 members, but getting this one out of the way still leaves them with an awful lot of problems to solve. 

Brian Caplen is the editor of The Banker.