Before the UK triggers Article 50 of the 2007 Lisbon Treaty, it should do everything possible to preserve, promote and improve the capacity of the City as an engine of national and regional economic growth.
The challenges to this aim are many. For one Brexit, looming but not yet actualised, has enticed foreign financial centres to covet the City’s financial activity. For another, and without much information on upcoming UK-EU negotiations, foreign banks with a considerable UK presence are considering whether they should move some activities to Europe as a prudent hedge. Plus, the UK’s future also looks increasingly likely to entail restricted access to the EU’s single market. All of this should make for difficult reading, not least because so much rests on the unknowns of future UK-EU negotiations.
All these challenges can be met, however, and London’s place as a global financial centre promoted.
One good counterweight to the current uncertainty would be for UK politicians to more aggressively advocate London’s role as a global financial centre. In the current climate, politicians from all UK parties should see that it is clearly in the national interest to promote the City. A cross-party domestic campaign explaining the City’s worth, and an external campaign explaining the City’s advantages, could run concurrently.
This may be easier said than done. Almost ten years on from the global financial crisis, anti-financial sector sentiment remains a powerful force. In particular, negative views of the bank sector have lingered: bailouts, moral hazard and compensation are anchored in our collective lexicon. Nor is this just a UK phenomenon. In the US, both presidential candidates have been open about their apparent disdain for financial services. And in bank-reliant Europe, no small number of political parties are still engaged in anti-financial sector rhetoric.
Are there alternative narratives? Yes. Had the global financial system been left to fail by policymakers in 2008, civil society would also have failed. That’s what is meant when policymakers remind us that the ATMs were about to close – food riots and martial law were not an impossibility.
Another point to counter populist views of finance: we are not in the same world as we were in 2008. The bank sector has undergone a huge, internationally-led regulatory and supervisory overhaul since the crisis. This process makes any persistence of narratives about unsafe or reckless banks seem particularly odd – or at least divorced from a sensible review of the new (arguably onerous in some cases) global bank regulatory framework.
What people are referring to when they use 2008 as a shorthand is reckless lending, something that is perhaps not the best issue du jour, especially in the euro area. There banks aren’t lending enough. In recent years, the European Commission has connected the dots between the rise of populism, low growth, low levels of bank lending and a lack of capital market development. As such, the Capital Markets Union (CMU) project has been as much a political effort as it is an economic policy push. Collectively, more Europeans increasingly understand that a strong financial sector also means a stronger body politic. CMU will not be abandoned following Brexit, but doubled-down.
Back to the UK. Before, during and after Brexit, it will also be in the UK’s interests to double-down on promoting our financial system. This means promoting London’s role in global economic cooperation, capital flows and commerce. To this end, UK political parties should at least be able to agree that the City’s fate is a matter of national interest. And, more widely, mainstream politicians on both sides of the Atlantic should promote global growth and counter global instability as aims that are attached at the hip. As a part of this task, they should introduce narratives to explain the value of the financial system to the wider economy. The time to do so – especially for the UK – is now.
Edward Price is the Americas Editor of the International Financial Law Review and a Steering Committee Member of the London School of Economics’ Government, Civil Service and Public Policy Alumni Group.