For many years, London was the banking capital of the world. Now with New York as the economic center of the globe, London still plays a very important role, especially as it is the epicenter of the European economy. It is still one of the most important banking centers in the world, and easily one of the most memorable. Just watch Mary Poppins if you need further convincing. Although a caricature of the banking industry in the late 1800s and early 1900s, it portrays the attitude well. With the “Brexit” quickly looming, that financial-centric nature that has long been a staple of London life might be changing. A new report out of England indicates that many financial institutions are preparing to leaving Great Britain in order to find a safer and more stable place to conduct business.
England, as part of the EU, has relied on “passporting” for its banks to do business without extra fees in Europe. When they exit the EU, this passporting will likely no longer be available, and a policy known as equivalence will take over. This provides little safeguards for banks at this time, and makes the likelihood of relocations very strong.
Whether or not these banks are correct in their long term assessment of the English economy is irrelevant. By moving out of England, they would be dictating their own future and making their predictions right one way or another. Unfortunately, this is not something that we can just look at the facts on, figure out what is best, and then go from there. Psychology plays a large role here, and unlike in many other instances where we are looking at the reactive psychology of other traders, for our own personal trading we need to look at the psychological factors contributing to banks leaving England.
The Brexit—England separating itself from the European Union—is creating uncertainty throughout England, the EU, and much of the world. This is very clear, and something we’ve already seen impacting the United States’ economy. Whether that uncertainty will pan out into actual problems doesn’t matter at this point because if the banks think that it will cause future problems for them and then take proactive movements to prevent them, the anticipated problems are no long the issue. The issue is now how the revised framework for England’s financial sector of the economy is going to impact you and me and our trading habits.
For example, if banks move out of England, there will be costs associated with that. The short term impact will be increased expenditures by major financial institutions, driving stock prices of publicly traded banks down on a fundamental level. The long term impact is a lot more difficult to see, but it should help prevent banks from the catastrophic losses that they might be envisioning.
This is not a small problem. Banking accounts for about 12 percent of the British economy, according to official estimates. And what’s more, many banks have already begun the process. Some of the smaller banks want to move from England and to the mainland European economy before Christmas of 2016. The bigger ones, rumor says, are trying to hold off a few more months. But if a trade agreement with the single economy Eurozone is not established by the first of the year, there’s a good chance that we could see them leaving for the continent soon, too. And while it is a problem for economies as a whole, you should be looking at this as an opportunity for you to make money. Whether you trade in the stock markets in a traditional manner, you focus on the Forex market, or you approach one or both through the binary options market, there is plenty of opportunity for you to use this momentous shift in economies to help yourself and your family see more money in your bank account.