(Bloomberg Opinion) -- In many ways, bankers seem to be getting ready for Britain’s exit from the European Union. Bank of America is setting up a new Paris office. A Deutsche Bank executive received a multimillion-euro bonus for overseeing preparations. Estimates of the number of jobs to be moved from the U.K. to other European countries run into the thousands.
Yet one thing has changed surprisingly little: the volume of business that the banks do out of their U.K. offices.
London has long served as a nexus for international lending -- and not just by U.K. banks. A German bank might use its U.K. subsidiary to lend to a Guernsey hedge fund. A U.S. bank’s London office might lend to a French industrial company. The Bank for International Settlements tracks these cross-border claims, which serve as a useful indicator of the U.K. capital’s financial preeminence.
A while ago, I started monitoring this lending to figure out whether Britain’s decision to leave the EU was having a detrimental effect. Initially it wasn’t, and then, in mid-2018, it seemed to be. Now, though, it’s pretty clear that the quarterly changes I saw were little more than noise: They weren’t unusually large by historical standards, and they swung back up again around the end of 2018. Here’s how that looks:
All told, according to the Bank for International Settlements, the claims of banks’ U.K. offices on borrowers in other countries have increased by a cumulative $250 billion since Britons voted to leave the EU in June 2016. That’s not huge in relation to the nearly $5 trillion in total claims outstanding, and pretty close to the average rate of growth for the past few decades.
Given the risks, why aren’t banks fleeing? One possible explanation is that there’s no need to hurry: Once they’ve prepared their offices elsewhere in Europe, it’s easy to move the assets when necessary. Another possibility is that bankers don’t believe the U.K. will actually leave, and hence aren’t really prepared. If so, Britain’s exit, if it happens, could prove a lot more surprising -- and a lot more damaging -- than it otherwise would be.
To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net
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Mark Whitehouse writes editorials on global economics and finance for Bloomberg Opinion. He covered economics for the Wall Street Journal and served as deputy bureau chief in London. He was founding managing editor of Vedomosti, a Russian-language business daily.
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