“Spirit of optimism in Frankfurt”
Interview published in Der Spiegel
Interview with Andreas Dombret conducted by Martin Hesse.
Mr Dombret, ever since the United Kingdom decided to withdraw from the European Union, many in Germany have dreamt of Frankfurt emerging as the big Brexit winner. Have those hopes been fulfilled?
We are currently at the crucial stage of decision-making about relocations. Banks will probably be moving a good many jobs from London to the EU, and it looks like Dublin and Frankfurt will be particular winners. The big US banks, especially, are focusing on these two cities.
How many banks have opted for Frankfurt am Main as their new EU base?
We’re in talks with about 20 big banks. These institutions aren’t just those seeking authorisation for traditional banking business, but also broker-dealers, which are investment banks that conduct securities trading on a large scale.
You mean institutions like Goldman Sachs, J.P. Morgan and Morgan Stanley. Will we be importing the Anglo-Saxon investment banking culture because of Brexit?
It’s not as though German customers haven’t been supplied with capital market products and services up to now. It’s just that they’ve received them predominantly from London. Which is to say that in future, the Anglo-Saxon culture is likely to have more of a presence in Germany than before.
Do you think that’s a good thing, given all that investment banks did to fuel the financial crisis?
Let me assure you that we will take care to ensure that all of them follow the rules and that risks do not get out of hand.
So far, it’s seemed like banks want to move as little business as possible away from London. Will Frankfurt become a location for banks’ “letterbox” operations?
Any bank can set up a letterbox address here – but they won’t be granted a banking licence for it. We require institutions to establish a team of qualified employees for all key areas here in Germany: senior management, risk management, compliance, anti-money laundering and the finance division as well as critical IT functions. And we have been assured that this will be the case.
What will be the benefits to the German economy of a few thousand more bankers relocating here?
Wherever banks have their EU base, qualified staff will come to work, and that’s where business decisions will be made. And that will spark a spirit of optimism in Frankfurt. Networks will be forged between banks, which will attract other enterprises. We will see a cluster effect.
The EU previously sought to create a capital markets union with the UK as a way of countering the US somewhat. Isn’t it a hopeless prospect without the UK?
The EU is losing its most important financial centre thanks to Brexit. This makes a European capital markets union augmenting our credit-based economy all the more important. Frankfurt makes sense as a hub from which to drive that project forward. But even if the UK leaves the EU, we should still work closely with them as part of the capital markets union.
Does the political will exist to establish Frankfurt as the centre of the capital markets union?
Frankfurt has positioned itself as the hub of monetary policy and financial supervision in Europe. Whether the city also becomes the core of the capital markets union hinges, not least, on whether the clearing of certain euro-denominated derivatives transactions continues to be based in London.
Should the clearing of these euro securities trades be moved to Frankfurt?
Clearing is highly systemically important. For that reason, European supervisors cannot and will not make any half-baked compromises, and must have strong rights to information and powers of intervention at all times. If these rights and powers are secured, clearing could still be based in London.
And what if London doesn’t want to play along with the EU’s powers of intervention?
If the UK should choose to follow its own path, it would then be necessary for euro clearing to find a new home. It won’t work if London adopts a siege mentality inspired by the motto “everything will stay as it is”.
Is that a threat?
No, it’s an objective necessity. We cannot allow a situation to arise in which banks have to be bailed out at the expense of European taxpayers because we didn’t have access to the clearing house in London.
When will this clearing issue be resolved?
I don’t know. It is very problematic that the Brexit negotiations are proceeding so slowly. The type of Brexit – hard or soft – that we’re heading for is anything but certain. This is a dilemma and an economic risk, not just for banks. All parties now need to make far-reaching decisions for a range of scenarios. This can prove very costly.
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