View from Dublin: London will no doubt be hit by losses after Brexit
Occasionally, when I want to refresh my memory as to how English can be written — and on financial matters too — I dip into Walter Bagehot’s Lombard Street. Reading the elegant late Victorian prose is like eating well-hung grouse; a marvellous experience if a bit rich for modern tastes. A little goes a long way.
The ideas of The Economist’s famous 19th-century editor, and crisis management inventor, are far from out of date though.
His maxim that central banks should support only solvent banks in difficulty has been held to explain the Bank of England’s initial ham- fisted response to the 2007 crisis.
Perhaps we can no more face the consequences of such ideas nowadays than we can a brace of maggoty grouse.
That still leaves the lessons of history.
Bagehot’s analysis of the London financial centre — from which the book gets its title — could not be more relevant.
In the 1870s Bagehot noted that the known deposits of the UK banking system, available for lending on the London money market, were £120m; as compared with £13m in Paris, £40m in New York and £8m in the new German Reich.
The unknown deposits were probably even greater. It was not that Britain was 10 times richer than France but much more of its wealth was in banks. To give a flavour of the prose: “Nothing but their immense misfortunes, nothing but a vast loan in their own securities, could have extracted the hoards of France from the custody of the French people.”
Using an ugly modern word, the size of the financial sector greatly “leveraged” Britain’s financial power. The hoards might as well not have existed for all the use they were to France.
The disruptions of the Franco-Prussian war of 1870 had themselves made London the banker to much of Europe as well — and so it has remained, except for the deliberate policy of the United States to use the disruptions of the two world wars to replace London with New York as the pre-eminent financial centre.
Even so, by most reckonings they are neck-and-neck. The major, mostly American, investment banks which can be regarded as the new Lombard Street have over 90% of their turnover and employment in London.
The financial trade balance on their London activities is almost €90bn, compared with €7.5bn in Frankfurt, €6bn in Paris and a hefty (for us) €6.5bn in Dublin. Almost three-quarters of a million people work in finance in Dublin – a third of all those employed in the sector in the UK.
It beggars belief any British government would put this at risk. But to what extent is it being put at risk?
History shows that the City has survived worse upheavals than Brexit and maintained its leading role. It may well do so again. But there are bound to be losses.
The question is how big will they be and how much can Dublin gain?
Even Bagehot would not have foreseen that Dublin could be a contender, but it is.
Two of the big beasts, Bank of America Merrill Lynch and JP Morgan, both have almost 10% of their European staff in Dublin.
The difficulty is knowing how much business will stay in London, or elsewhere in the UK, and how much might move.
If Ireland can get its ducks in a row, a lot of the 20,000 jobs under threat in the services business might come here.