A proposed split of the U.K. from the European Union would not only leave British banks unharmed, London Mayor Boris Johnson said Wednesday, but also allow the U.K.’s financial sector to “flourish mightily.”
The comments from the popular mayor, who announced his support of the U.K. leaving the EU last month, animate what has become a growing conversation: whether a British exit from the EU, a so-called Brexit, would impair London’s standing as a top global financial hub.
Leading industry groups have taken the opposite tack. “Leaving the EU could risk damaging UK financial services through uncertainty, reduced market access and a loss of influence over the conditions of trade,” TheCityUK, a lobbying group for London’s financial sector, said in a report this month. Banks in the U.S. and Europe have warned they would consider shifting operations away from Britain if the country left the EU.
Chris Cummings, chief executive of the group, has elaborated a related concern. “I don’t think we would see a huge movement of jobs immediately, but what would worry me greatly is that foreign direct investment doesn’t arrive,” he said. A poll conducted by the group found that 37 percent of banks operating in the EU would relocate services to continental Europe.
But Johnson waved off the lobbying group’s concerns Wednesday in testimony to the House of Commons Treasury Committee. Johnson told lawmakers that private conversations with bankers had mollified those who worried that London banks would suffer in a Brexit. The Brexit will be put to a public referendum on June 23.
“What has struck me in private conversations I occasionally have with leading bankers is how finely balanced they believe it to be,” Johnson said. “They say they don’t think it will do any damage to London’s position as a leading financial center.”
His comments came amid a steepening of market stresses stemming from Brexit fears. On Wednesday, prices rose to six-year highs on products that help traders hedge against shocks to exchange rates between the pound sterling and other major currencies, Reuters reported.
Public opinion has recently swung in favor of Britain tossing out its EU membership, with Brexit backers edging out a 2-point lead over those who wish to remain, according to in a poll conducted this week by ICM.
Though Mark Carney, governor of the Bank of England, has tried to stay out of the fray, he admitted earlier this month that a Brexit posed the “biggest domestic risk to financial stability” owing to the uncertainty it caused.
At banks including HSBC and JPMorgan Chase, analysts and officials have warned that the uncertainty could prove too much for banks to handle. A Brexit would require British diplomats to ink a raft of new financial accords with European authorities. Switzerland, for example, has 120 bilateral agreements with the EU. Banks worry that the loss of market access during the potentially lengthy process could prove costly.