As time progresses, the confusion surrounding the banking industry is starting to be sorted into key issue categories that demonstrate how desperate market participants are for understanding.
Four business days after the referendum, and banking confusion is starting to be sorted. That doesn’t mean sorted out as in solved, but sorted into key issue categories that are demonstrating how desperate market participants are for understanding. The two principal categories seem to be licence-to-practice and economic prospects – these overlap in the wholesale and many operational aspects.
The license-to-practice (LTP) debate is rapidly becoming technical; get used to arcane debates about ‘passporting’ and ‘equivalence’ – for the laymen, the former is perceiving the UK with a Norway/EU relationship and the latter is perceiving the UK as the USA (I will leave aside the inevitable debates of Norway pays the EU and the USA is the world’s largest economy). These LTP arguments are largely debating how the UK wholesale banking sector could continue business with the least disruption and somewhat ignore that this is perhaps a self-serving approach that is no longer possible.
The economic prospects the debate is completely ‘untechnical’ and totally a guessing game, no doubt persists that uncertainty is now the order of the day and will delay investment and employment and weaken the economy – read the ratings agencies reviews and these follow pre-vote predictions. The debate is for how long this lasts or the degree of permanence. The ‘estimations’ on economic prospects seem to be splitting into bounce or slippery slope. Does the falling pound, expected political distance from Continental Europe, and government/financial institutions’ messages to believe in calm and stability lead to a greater sense of opportunity (largely in the non-financial institutions space) or does the uncertainty of future trading and political increase with deepening recession? One certainty in this is that the LTP argument can only lead to increased expenditure on legal and business advisors, however, we should be asking at the expense of what with the likely answer being investment.
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.