Part IV. Restoring the Continental Financial Center(s)
30 Apr, 2019 13:26
source: 香港奇点财经 Singularity Financial
Singularity Financial: Does the result of Brexit make your work easier or harder, to promote Paris as the alternate Financial Centre in EU, or even to replace London as the largest one across UK and EU?
Christian Noyer: Well, we can look at this from the economy in general and the financial sector, it would depend, of course, on the the choice that will be made by the United Kingdom. But this is going to have consequences in the case of the financial sector. There are regulatory reasons for firms to make hard choices quickly.
On the general economy side, we have witnessed strong increase in FDI (foreign direct investment) in France, last year was the historic highest level, an increase of 30% from the year before. This increase is mostly in the manufacturing industry. As to the reason of the increase, was it in partly due the Brexit, or due to the improvement of attractiveness of France after structural reforms? This is yet hard to say, but probably due to the mixture of both.
Now looing at the financial sector, even if the UK after Brexit still participates in the customs union, the access of financial services to EU clients will require a legal entity and operations in the year 2027, because the firms established in London will lose what we call the EU passport.
In case of the risk with a hard Brexit, basically, Paris is the only financial center on the continent, which has comprehensive financial sectors including the scale of banking, insurance and asset management sectors etc., and the size of market infrastructures, which is much more important than anywhere else.
We may take Frankfurt for instance, it’s a banking city, but the insurance industry and asset management in Germany is not in advanced position. Also fintechs are not yet in scale in Frankfurt yet, rather there is early stage development more in Munich. Or if we take Dublin or Luxembourg, the small cities which are more specialized in institution of funds. So from that basis, now we see the American banks moving their dealing and trading rooms, or creating new trading rooms in Paris.
By the way, with these changes, we’re going back to the situation, with a much normal balance between London and Paris. It was the situation that we had 30 years ago. Then, besides the concentration of the global finance in London dated back in old days, after all, it was due to the first creation of the single European market, paradoxically, and due to the creation of the euro, financial activities which were previously performed in Frankfurt, Paris and Milan, became concentrated quite a lot in london as it was permitted by the passport there. As there was the feeling that banks did not need to have many trading rooms in Europe with a single currency.
Now the Brexit will create tendency for need of a second trading room, apart from London. And the choice of Paris seems to be dominant. It’s probably shared with a few other financial places, Paris will be important, but not only Paris, with three or four Continental European cities.
And one important feature is that France is the economy on the continent,that is most financed by markets. While we usually see in the US, in the financing of the economy, about 75% – 80% is by markets, and the rest is by bank loans. It is the contrary, in Europe. Uh, but in europe, you look at europe more precisely in the UK, in France, market financing is around forty percent, whereas it is even smaller in Germany and Italy. And this explains why, in France, it does lead to interest to in market financing, which means using eventually various currencies. So, the french industries are those that have tried to use foreign currencies probably most actively. And that includes the renminbi, and the develoment of Paris as an offshore center of RMB. That was, by the way, what I met with the Central Bank Governor of China and discuss a lot about, and the Governor of the PBOC was extremely favorable for the development.
Singularity Financial: So to conclude, you would like to embrace the rest of the world in the financial capability regard with the readiness of France or Paris. Is that your attitude?
Christian Noyer: Yes, absolutely. We really want to develop the international presence with international players or foreign players. It is an absolute condition, that we need to have big markets in Continental Europe in 2027. I should say, because we cannot, and we will not be able to rely on London only in the future, we need to have this big financial market in order to connect to the rest of the world; and to be able to provide, to European corporates, not only French corporates, the access to all the financial operations, hedging, exchange, markets and coverage, etc. This is needed by the investments and asset management industry, and it is needed for the financing of the corporates.
I think the American banks have responded extremely well, and the Japanese banks have started also to follow to a large extent, the same path. it’s smaller, but it’s important. Well the choices may be not completely obvious for the time being from the Chinese financial sector, probably because the Chinese banks have had several legal entities or branches in several European countries already.
It’s clear that many financial activities done from london will have to be done from somewhere else. That’s one of the reasons why I am coming back to visit the financial institutions in China. To discuss, and explain that not only Paris is likely to be the major financial center in 2027, but also, it’s the best place to have access to operations in Africa, and even Middle East because there are much more links with France by traditions.
France invested a huge lot in africa in the past and in the financial system as well, right now, the developments are going on very well, e.g., with the insurance groups, which also serve as links between North African countries like Morocco with the rest of the world. This French link in the financial industry with Sub Saharan Africa has been relatively strong too, French banks are operating in many places not only in French speaking countries, but also in English speaking countries.