"The Brexit Diary: Holding out for a hero, collateral damage, seeing through the smoke "

01 July, 2016
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It has become painfully clear that beyond financial institutions increasing their liquidity no institutional plans for leaving the EU were in existence or perhaps even contemplated. Is it time for the industry to find its own way?

Yesterday in Parliament, PM David Cameron and many MPs enjoyed frequently quoting lyrics and titles from their favourite recording artists, with the PM’s choice the 1980s band, The Smiths (fine music but such an anonymous name, which was the group’s intention).  Keeping with that musical theme, what most of the UK’s banking and finance community desperately needs now can be expressed in Welsh singer Bonnie Tyler’s 1980s song, ‘Holding out for a hero’; dragging this on one more painful bit, switch a letter in Bonnie’s surname and beyond the City we need certainly need a national ‘tiler’ fixing all of the UK’s diverse interests into a unified work.

Regardless of the side taken in the pre-referendum debate, it has become painfully clear that beyond financial institutions increasing their liquidity no institutional plans for leaving the EU were in existence or perhaps even contemplated. Indeed, a range of interpretations of what the winning the electorate mandated or desires are now being floated often without enough economic attention. Yet, as I have listened to and questioned prominent ‘Leave the EU’ politicians I have noted a consensus that no harm was intended to the banking and finance industries. However, I have come to observe a political view that the industry must now find its way on its own.  Someone sitting next to me at a presentation interpreted this as “we are collateral damage – you know, when a nation wounds its own forces in military action”.

Banking and finance is so broad with so many interests, it was hard to think of anyone possibly uniting this varied world and explaining how important it is in the national interest. Also, the legacy of the last financial crisis and historical conduct issues hasn’t left many institutions’ leaders as visible spokesmen for the industry or uniting it. Yet, similar to the political framework, UK banking & finance needs a ‘hero’. The jobs, the export revenue, taxes contributed to the exchequer……too much is at stake for collateral damage. And it isn’t simply banking and finance. Law, accounting, financial education, and financial technology are among many other industries that will all be touched.

On the economic front, a general calming of markets has given time for reflection on some the gyration of recent days. The FTSE 100 is back to pre-crisis levels, but recall it is largely foreign business that is listed in the UK – its return may mean the rest of the world is now comfortable that Britain’s changes will stay domestic. Domestic share indices and domestically focused businesses have not fared as well as well as the FTSE 100; this is particularly true of banks and other financial services participants.

As I examined voting patterns of the referendum, it appeared the strongest support of the Leave campaign were among the least likely direct investors or substantial consumers (e.g. the older you are, you tend to buy less things, change houses, sell investments, etc.) and these will likely be the portion of the population most confident at the moment. They are not likely to positively affect the economy very much. On the opposite end of the spectrum, it appeared the strongest supporters of Remain were those more likely to invest and consume and they will likely have lost confidence. General surveys on economic confidence and the investment climate will very much need to more accurately focus on the attitudes of those with more active investment and consumption profiles to best understand trend changes. No easy task and perhaps even beyond that of a superhero! Tomorrow, what can the BoE do?

Dr Peter Hahn is the Henry Grunfeld Professor of Banking at ifs. You can read his entire series on Brexit and it's implications here.

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