“Influx to Frankfurt – chances for the city as business location, financial centre and modern metropolis”

Frankfurt will profit when many bankers move from the Thames to the Main. Here is an interview about the chances and challenges with Dr. Rolf E. Stokburger, Managing Partner, Germany, at the international HR consultancy Boyden and a specialist in the search and placement of executive personnel.

People working in London’s financial sector seem increasingly willing to move to Frankfurt. What are the reasons for this?

Dr. Rolf E. Stokburger: The increasing relevance of the Brexit vote and the resulting decision of a number of banks to switch their location for financial services and products to Frankfurt are causing more and more London bankers to think about moving to Frankfurt. American and Japanese banks, in particular, such as Goldman Sachs, Morgan Stanley, Citi, Nomura, Daichi or the Swiss-based UBS, have already announced their intention to resettle. We can distinguish two groups of bankers at the moment. Firstly, there are those who see relocation as an opportunity for career advancement and therefore want to play a pioneering role as a “first mover”. Secondly, we have a lot of professionals whose move to Frankfurt is planned as a part of the resettlement of their business division – and who simply have no other choice but to “take it or leave it”.

When all these people live and work in Frankfurt in future, what are the opportunities that such an inflow presents? And what are the challenges?

Stokburger: When the first wave of London bankers comes to Frankfurt, our financial centre will grow further and the city will become more important internationally. But the expansion of existing foreign bank representations in Frankfurt and the foundation of new banks under German law will also create new jobs for German bankers, especially in the fields of risk management, compliance and administration. In addition, any enlargement of the Frankfurt financial centre will certainly help attract further players and operators in the market, such as business consultants, auditors, law firms and private equity funds. The banks resident in London at the moment, on the other hand, will inevitably have to draw up appropriate incentive plans for Frankfurt so as to induce and motivate their employees and executives to move to and remain in the Main metropolis. And for its part, the City of Frankfurt will have to face up to the challenge of providing enough living space for homes along with the sufficient international school places and day-care facilities.

How can the Rhine-Main region best prepare for this influx?

Stokburger: The relocation of capacities to Frankfurt announced up to now must be seen within a longer perspective. It can safely be assumed that the establishment and expansion of specific banking houses that has now been publicised will be followed by a number of others – a great opportunity for Frankfurt as a business location and financial centre, but also a great chance for Frankfurt as a major city. With a view to this imminent influx, as well as any further settlements that may come, the city and the region should act together with a more unified voice and with a greater resolve and should offensively advertise the merits of Frankfurt as a top location. Frankfurt, together with the many towns and municipalities in its environs, has a host of advantages over a mega-city like London – and these benefits should be proactively promoted. A glance at the various construction projects currently in progress in the City of Frankfurt already shows that at least the real estate sector is geared up for growth. To make sure that the integration of new bankers into the urban and social life of the city is as smooth and successful as possible, it is now up to the city marketing and development planning agencies to communicate the cultural strengths and advantages of Frankfurt and its vibrant diversity more effectively. This will help brush up, if not revamp the image of a city that is partially perceived as being too provincial.

You can read more about this topic here:

Picture credits: Boyden

Frankfurt’s international talent pool reaching new depths

In the wake of the UK Brexit decision, it’s now evident that many financial service providers will be relocating their EU locations from London to Frankfurt. In purely practical terms, this means that many people are facing having to move from the Thames to the Main during the foreseeable future. This impending change is not without impact on the general mood in the sector.

Christopher Schmitz, Partner at Ernst & Young (EY)

“In our discussions with those affected, we sense that relocation first and foremost means uncertainty,” says, for example, Christopher Schmitz, a partner at the international Ernst & Young (EY) consultancy with responsibility for Financial Services. “After all, London was deliberately chosen at the time, and people have also felt at home there in many ways over a number of years. A transfer to other European locations is now on the agenda – and this involves a switch into a different language environment, culture and living situation, and lots of other changes besides.

The multicultural scene is maturing

While EU and UK representatives are busy discussing the rights of millions of EU citizens in the UK and vice versa as part of the Brexit negotiations, companies like EY are registering a steady increase in the number of unsolicited applications from London in the direction of Frankfurt. The reasons for this are manifold.

“In terms of the quality of life, Frankfurt has a standing that is by no means worse than other European metropolitan centres,” Schmitz contends. The Rhine-Main region, with its central location in Germany, can boast an excellent transport infrastructure along with an efficient international airport. The attractive countryside in the immediate surroundings and the city itself with its full spectrum of cultural offers are also impressive arguments. “Frankfurt is already today a melting pot of multicultural influences, enriched by the fast-growing international communities from the IT and banking industries that are resident here,” as Schmitz points out.

“Secondary effects of the influx are likely throughout the region, such as the growth of purchasing power, overnight stays and tax revenues.”

A glance at the portfolio of applicants who want to live and work in Frankfurt reveals a surprising picture. It’s not necessarily just the citizens of European countries who are choosing the Rhine-Main region as a location. Instead, highly qualified candidates from other nationalities are also sending their applications from London.

“With the EU Blue Card, i.e. the EU-wide work permit, Frankfurt promises freedom of travel and work throughout the EU – something that a UK work visa may no longer be able to offer after the Brexit,” as Schmitz explains the current situation. Indeed, according to the Orbis database, the number of Indians with a Blue Card in Frankfurt has already risen by 566 percent between 2013 and 2016, while the average increase in Germany as a whole amounted to a mere 80 percent.

Frankfurt is a favoured destination for Indian specialists

Generally speaking, the city on the Main is a favoured destination for Indian specialists in particular. Also looking at the period between 2013 and 2016, Frankfurt recorded a rise in its Indian population of 4,720 residents or 37 percent. In comparison, the overall influx of other nationalities increased by only 14 percent.

Schmitz sees this trend as offering the chance to profit from talent pools to which the city previously had no or only limited access: “Frankfurt can establish itself as a location for international talent and therefore also become interesting for further employers, for example those from the tech sector,” the expert from EY insists. He sees the financial services sector as the main beneficiary of this development, but he also stresses the secondary effects of the influx, such as the likely growth of purchasing power, overnight stays and tax revenues throughout the region.

“With the EU Blue Card, i.e. the EU-wide work permit, Frankfurt promises freedom of travel and work throughout the EU.”

Nevertheless, despite all its positive effects, so many people moving into the city region is also a challenge. It is vital to work on achieving an effective integration. According to Schmitz, proficiency in the German language will help ensure this in the long term, but the availability of places at international schools for the children of international employees and sufficient living space are also important contributing factors. “What’s more, the politicians and the business community could, for example, also provide a Welcome Package with information on the region or offer concessionary fares for local public transport during the first few months. Equally helpful might be a multilingual care and support service for new arrivals in Frankfurt or the provision of administrative assistance in making applications, such as for the Blue Card,” as Schmitz also suggests.

You can read more about this topic here:

Picture credits: Ernst & Young, AnastasiiaUsoltceva / fotolia.de / Back Lit Business People Traveling

Happy Birthday Deutsche Bundesbank!

The German Central Bank, headquartered in the banking centre Frankfurt am Main, is celebrating its 60th anniversary.

Almost 13 billion German marks (DM) are still in circulation – one of the reasons is because many Germans are still hanging on to the coins or notes from the old currency as a souvenir. The cash can still be exchanged in the branches of the Deutsche Bundesbank, an institution that has watched over the stability of the DM as the monetary watchdog for decades.

With the introduction of the euro as German currency, this responsibility has passed into the hands of the European Central Bank (ECB). But the Bundesbank and its almost 10,000 employees continue to supply banks with fresh cash, sort out counterfeit money, process payment transactions both at home and abroad and supervise the activities of most of the banks in Germany. It also holds and manages the country’s gold reserves.

The Deutsche Bundesbank is celebrating its 60th anniversary this year, and to mark this jubilee it has recorded everything one needs to know about its inception and development in brief yet informative little films. On the Deutsche Bundesbank website, anyone interested can also find key dates, facts and figures about the central bank and has the chance to view a range of historical photos and film footage.

Picture credit: Deutsche Bundesbank

 

Do you have any questions?

In the wake of the Brexit decision, a number of banks will be relocating. This raises a lot of questions – political ones as well as quite practical ones.

The search for an alternative location to London is currently occupying the thoughts of globally operating banks. Some have already opted for Frankfurt and are currently moving here. Others are still weighing up the pros and cons of the alternatives in the European Union (EU). Frankfurt has a number of advantages in such comparisons.

As an international financial centre, Frankfurt has a lot to offer. The residence of the European Central Bank alone lends the location a special allure. But there are more solid arguments. That’s why – not only since the ultimate Brexit resolution – the city and state governments, politicians and interest groups have been working hard to provide decision-makers in the banking world with tangible arguments and sound Information.

Core issue labour law

One of the core issues that comes up again and again in dialogues is the protection against dismissal in German labour law. This requires that alternative employment must be sounded out. If a trader loses money for his employer, the employer will not want to have to employ him elsewhere. This is because the game runs differently on the trading floors. The dealers have less security, but are paid far better. Around 80 percent of the income millionaires from EU banks are based in London. Most of them are employed in dealing. Such a deal turns out to be good for both parties: if an employer wants to dismiss an employee, he or she receives an easily calculated compensation.

The importance of this aspect is also well-known in the political community. The Hessian Finance Minister Dr. Thomas Schäfer has already taken up the topic: “Nothing has changed as far as our objective is concerned of easing protection against dismissal for employees with very high income in credit and financial service companies,” he stressed once again in recent days. He knows that he has the support of the majority of people when he says that a high-paid trader is less worthy of protection than a normal bank employee. And this hits home with the decision-makers in the major banks.

However, the Finance Minister is convinced that the solution cannot merely be derived from the income: “It has become clear that a solution in labour law tailored to the specific credit and financing companies finds much greater support.” What he means is to exclude a precisely defined group of risk carriers from the protection against dismissal – and therefore to remove the basis of one of the main criticisms of the Frankfurt location. The Hessian state government considers such a statutory amendment to be feasible and expects a bill to be introduced after the German federal elections in autumn 2018.

Dr. Thomas Schäfer, Hessian Finance Minister: “We want to ease the protection against dismissal rights for the group of risk carriers in credit and financial service companies.”

Go Frankfurt Tax

There are also questions in the UK as regards German tax law that require elucidation. A major hurdle is not only the interpretation of the law, but also the German language. In order to help all those who want to come to Frankfurt as Brexit immigrants, the Hessian Ministry of Finance has set up an English-language homepage and a hotline. This is an offer to answer the very practical questions that arise when employees and their families move to another country, to a new city where a foreign language is spoken. The Finance State Secretary Bernadette Weyland has activated the service in mid-June: “Call us, write an e-mail or visit us online. We are happy to help you in English.”

Dr. Bernadette Weyland, Hessian Finance State Secretary: “Citizen Service has a long tradition with us. We now offer this service in English as well.”

Frankfurt is being heard

From major political decisions to small-scale assistance in day-to-day issues – there’s a lot of movement going on at the moment to make Frankfurt an attractive, and also likeable, location for the employees of banks from all over the world. To do the right thing is the indispensable prerequisite in such a competition among locations. To talk about it is the essential groundwork. This is also the maxim of Hubertus Väth, who, as Managing Director of Frankfurt Main Finance, has conducted over 600 discussions with journalists from all over the world since the Brexit decision: “We have achieved that the world is talking about Frankfurt. We are in the pole position as regards major banks relocating their headquarters after the Brexit and can already record numerous successes.” That’s why he is not only meeting with representatives of large and prestigious media companies, but also with the Japanese newspaper Yomiuri Shimbun, the New Zealand channel Newstalk ZB and the Russian online platform Vestnik Kavkaza. In this way, the message of Frankfurt Main Finance can be transported into the farthest corners of the world. The fact that he is being heard is shown by the great media echo: since the Brexit decision, there have been reports in more than 200 media from 31 countries in 525 articles, which corresponds to a coverage reaching over 2.6 billion Readers.

Hubertus Väth, Managing Director of Frankfurt Main Finance: “We are in the pole position as regards major banks relocating their headquarters after the Brexit.”

Picture credits: bilder-bibliothek.blogspot.de / Skyline – Frankfurt am Main, HMdF / Sabrina Feige

CFS survey: One year on from the Brexit referendum

Financial industry still sees Frankfurt as the major winner / London to remain one of the top 3 financial centres / CFS warns against euphoria

According to a recent survey by the Center for Financial Studies, one year on from the Brexit referendum, a clearmajority of the German financial industry (86%) still believe that Frankfurt is the EU location that stands to benefit the most from Brexit. In addition, over two thirds of the companies surveyed (69%) expect London to remain one of the top 3 financial centres worldwide, even 10 years after Brexit. Only 14% of respondents believe one of the rival financial centres will emerge as the major winner. In this respect, the survey participants have more confidence in Paris and Dublin, whereas Luxemburg and Amsterdam are hardly expected to gain any significant location advantage.

“The survey underlines the particularly high expectations placed on Frankfurt to take advantage of Brexit. However, I would warn against getting carried away with the euphoria. Competition is very intense, especially with Paris. Substantial efforts are required on the part of the German and Hessian state governments, not forgetting the city of Frankfurt, to actually realise this potential,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the results.

The German financial industry is also united in its optimistic view on the specific question of how many extra financial sector jobs are likely to result from Brexit over the next five years in the Financial Centre Frankfurt. Of the survey respondents, 21% expect more than ten thousand additional positions to be created. Frankfurt Main Finance has viewed this as a realistic figure ever since the day of the referendum in the UK and expects a thousand new jobs to already be announced by the end of the current year. However, a larger proportion ofrespondents (45%) anticipate a figure in the range of five to ten thousand extra jobs. A further 33% predict between one to five thousand new jobs. Just 1% anticipate fewer than one thousand additional positions.

“Even if the Financial Centre Frankfurt hastaken the pole position, there are still around one hundred banks in London which are looking for a new home in the Eurozone. Only around twenty have made decisions. There is still a great deal to be done,” comments Hubertus Väth, Managing Director of Frankfurt Main Finance e.V..

Financial institutions in London are preparing to shift partsof their business from London to Continental Europe. When asked which region those institutions likely to shift the most jobs come from, 37% of respondents pointed to North America; 30% believe European firms will relocate the most jobs; 19% named the UK and 14% the Asia-Pacific region (APAC).

On the same topic, the majority of the financial industry (71%) anticipates a substantial relocation of jobsin the area of securities trading and settlement, followed by corporate finance and corporate banking (49%). In addition, 40% of respondents named the area of risk management and compliance. As for the asset management segment, 30% of respondents believe a substantial shift of jobs is realistic.

“In many quarters the potential relocation of the European Banking Authority (EBA) to Frankfurt is regarded as an important signal. Aside from proximity to the European Central Bank (ECB) being a pull factor in such location choices, the importance of the future home of the EBA is overplayed when it comes to location decisions of financial institutions. Issues of market access and infrastructure play a far more important role here,” said Professor Volker Brühl, Managing Director of the Center for Financial Studies, analysing the survey results.

CFS Index falls by 2.0 points

Revenue and earnings growth of financial institutions declines – Service providers expect the same for the current quarter / Financial industry continues to increase investment volume

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 2.0 points to 111.6 points. The declining rate of growth is primarily a result of smaller increases in revenues and earnings among the financial institutions. The service providers are expecting a similar development in the current quarter. On the contrary, the service providers inparticular report positive growth in investment. In addition, the financial institutions are continuing to reduce their job cuts and now, after implementing major personnel measures in the previous quarters, indicate an almost neutral business sentiment of 99 points.

“It is perhaps still too early to speak of a trend, but there is a growing impression that the financial institutions are making a comeback. Over several quarters now we can observe a constant pattern: increasingly positive expectations among the financial institutions coupled with decreasing values among the service providers – and this goes for all four components of the index: revenues, earnings, investment and employees,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany is rated even more positively than just after the Brexit vote one year ago

The future international importance of the Financial Centre Germany, which has been rated very positively since the Brexit vote, rises by another 3.7 points in the third quarter of 2017 and now stands at 138.7 points, exceeding the previous high (136.8 points) reached shortly after the Brexit vote.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V. emphasizes: “We have already achieved quite a bit through our combined efforts. The Hessian government’s coordinated approach made a significant contribution towards our shared successes.”

Financial institutions record sharper decline in revenue growth, service providers are expecting the same for the current quarter

Growth in revenues/business volume in the financial industry is declining, but remains at a positive level. Among the financial institutions, in particular, this sub-index drops by 7.5 points to 106.4 points. The service providers record a smaller decline of 2.1 points and remain at a very good level of 124.5 points. For the current quarter, however, they are anticipating a sharper decline in growth, whereas the financial institutions expect revenue growth to begin to rise again.

Earnings growth of financial institutions falls back to first quarter level

The surveyed financial institutions are not able to maintain their strong earnings performance of the second quarter. The corresponding sub-index falls by 7.1 points to 105.4 points. However, they are expecting a rise in earnings growth in the current quarter. Among the service providers, earnings growth remains almost unchanged. The sub-index rises by 0.7 points to 118.6 points. However, a relatively sharp decline is predicted for the current quarter.

Investment volume among service providers reaches highest level since the survey began in 2007

The growth in investment volume in product and process innovations among the service providers rises by 11.7 points to a historic high of 123.5 points, though this is expected to decline significantly in the current quarter. The corresponding sub-index for the financial institutions also rises by 3.1 points to 116.7 points, and another sharper increase is expected for the current quarter. Both groups are therefore maintaining a very good level of investment.

Financial institutions continue to curtail job cuts

As observed since the start of the year, the trend among financial institutions to curtail job cuts continues. The corresponding employee numbers sub-index rises by 1.5 points to 99.0 points, which means it has almost reached the neutral level of 100 points. Regarding the current quarter, the financial institutions are expecting job cuts to increase slightly once more. By contrast, the service providers continue with a strong level of recruitment. The corresponding sub-index rises by 5.0 points to 118.6 points. However, the service providers are more pessimistic about the current quarter and expect weaker growth in recruitment.

Deutsche Börse launches new online platform to inform about stock exchange trading

Explaining complex issues about the stock exchange – that’s the goal now being pursued by Deutsche Börse AG with consumer-oriented videos for both beginners and the more experienced.

Many Germans shy away from making any financial investment in shares. This is the finding of a representative study on shareholder culture in Germany conducted in January 2017. The main reason that emerged for this, in addition to a lack of financial resources and a great need for security and peace of mind, is the low level of awareness and knowledge about the subject of stocks and shares. Deutsche Börse has also recognised this deficit and has now published ten short basic videos in German on its website that are intended to educate the wider public about the stock exchange. “Germany is still a developing country when it comes to understanding stock exchange trading and investing in securities,” said Nicolas Nonnenmacher, who is also responsible for the Capital Markets Academy in his capacity as Head of Community Development at Deutsche Börse AG. “The general public looks askance at the idea of building up capital through equities and securities without having looked into the subject to an appropriate degree. Our new portal accompanies beginners on their path to the stock exchange, and also provides advanced investors with high-quality content to effectively turn themselves into stock exchange professionals.”

In the explanatory videos, the two actors Anna and Michael show viewers, for example, how to open a securities account or portfolio, what to bear in mind when selecting shares, and how stock exchange trading works in practice. The films last between 20 and 30 minutes. In the video lectures, acknowledged stock market experts explain the basics about the financial markets and exchange trading. Under the second rubric “Stock market products in detail”, experienced investors learn the functions and special features of individual types of securities in extensive online courses about exchange-traded funds (ETFs) and structured products. The free registration creates a personal learning account that documents individual learning progress; learning units can be picked up again at exactly the point where they were stopped. The German technical inspectorate TÜV Rheinland was a partner in developing the portal.

Copyright: Deutsche Börse

Michael Rüdiger, new Chairman of the Exchange Council

Michael Rüdiger is the new Chairman of the Exchange Council. The DekaBank CEO takes over from Lars Hille, DZ Bank.

Michael Rüdiger was unanimously elected as the new Chairman of the Exchange Council of the Frankfurt Stock Exchange on June 1st. Rüdiger is CEO of DekaBank Deutsche Girozentrale and has been a member of the body since December 1st, 2016, where he represents the public-sector credit institutions. Rüdiger takes over this office from Lars Hille, who, as Executive Board member of the DZ Bank, had succeeded the long-standing Chairman Lutz Raettig in January 2017. Since Hille will be leaving the DZ Bank at his own request in October 2017, a new appointment for this important position on the Exchange Council became necessary.

The Exchange Council is a forum for discussing key issues and developments at the Frankfurt Stock Exchange; its approval is required for all decisions of fundamental importance. Among other things, the Exchange Council is responsible for the appointment, withdrawal and supervision of the executive management. Furthermore, it issues the Exchange Rules, the Fee Regulations and the Conditions for Transactions on the Exchange. The Exchange Council has 18 members, who were most recently elected on December 1st, 2016 for a term of three years.

Copyright: DekaBank Deutsche Girozentrale

Research conference: measuring systemic risks

Scientists and practitioners discuss different approaches: This year’s Research Conference of the Frankfurt Institute for Risk Management and Regulation (FIRM) has focused on approaches to identify and measure systemic risks. More than 50 representatives from the domain of science and practice discussed new models from the research community on June 22nd in Mainz and tested these against the requirements of everyday application within the Banks.

Prof. Dr. Günter Franke, Chairman of the FIRM Advisory Board, organised the conference and invited professors from various universities and academic disciplines to Mainz. Franke explains: “Our intention with this conference was to give practitioners an insight into current research approaches, some of which are still in the development phase, and to provide researchers with direct feedback from experienced practitioners about the feasibility of their models.”

Prof. Dr. Günter Franke: “Presenting new scientific insights and being able to discuss them with practitioners is the objective of the research conference.”

Günter Franke, the research conference organiser

Prof. Dr. Gunter Löffler from the University of Ulm started off the event. His formulation: can reliable information be derived from systemic risk measurements? He outlined his approach with two examples – CoVaR and MES (Marginal Expected Shortfall) – two common risk measures among experts where there are several pitfalls to be taken into account. One of them: the dimensions occasionally tend towards excessive simplification. In the estimation model the risk of the financial system is partly only traced back to the bank. Nor is there an analysis of who actually triggers a risk in a system. Both of these can lead to misinterpretations, which must be taken into account during application in the risk measurement and management, as Löffler told the practitioners.

Prof. Dr. Gunter Löffler: “Systemic risk factors can’t simply be applied without thought, but they’re for example a sensible addition to stress tests.”

Prof. Dr. Thilo Meyer-Brandis, a mathematics professor at the Ludwig Maximilian University of Munich, developed a network-based measure that maps the risk-bearing capacity of large financial systems with regards to contagious effects. He asked whether depending on the network structure capital requirements can be placed in such a way that a resistance of the system to risks can be derived. His model analysis assumes an initial shock and calculates what effects will arise for which bank in the network and how the shock will spread throughout the system. One of his findings: when a system is not robust, even a small shock is enough to trigger a collapse. On the basis of the model, however, every bank can understand for itself which capital requirement it has to meet to make the network resistant, Meyer-Brandis explained.

Prof. Dr. Thilo Meyer-Brandis: “We can derive explicit criteria that demonstrate the resilience of a network.”

Scientists in dialogue: Gunter Löffler, Thilo Meyer-Brandis and Simon Rother

All lectures were subsequently discussed by a practitioner and a scientist. For instance, Prof. Dr. Christian Koziol from the Eberhard Karls University of Tübingen explained how the mathematical approach from Meyer-Brandis can be complemented by the addition of an economic perspective. Jochen Peppel from the consultancy Oliver Wyman showed on the basis of the Meyer-Brandis dependencies model which factors can be applied for the stability of networks besides the directly financial factors, and how such factors can be linked. “This dialogue between science and practice is proving to be highly productive because it illustrates the wide range of different perspectives. That makes it easier for those taking part to inform their banking management with the new findings from the research community,” Franke maintained.

When talking about systemic risks, the impact of so-called asset price bubbles is also important. An empirical analysis presented by Simon Rother (Friedrich-Wilhelm University of Bonn) discussed the question of how price bubbles can become systemic risks. The subsequent discussion made it clear that the systemic risk already occurs during the development of such a bubble and that most players are also aware of this. The analysis can help to make a gut feeling quantifiable.

Prof. Dr. Jan Pieter Krahnen from the Goethe University in Frankfurt devoted his lecture to interbank intermediation in Germany. He built up a picture of interbank receivables and liabilities, broken down according to different deadlines. There’s no doubt, he insisted, that the interbank market could serve as an instrument for managing the interest rate risks of a bank. Prof. Lutz Johanning from the WHU – Otto Beisheim School of Management engaged in an intensive discussion about what role the interbank market can play for risk management in future. Michael Rab from the Raiffeisen Regional Bank Lower Austria-Vienna pointed out that interbank intermediation in Austria has been largely characterised by repo transactions since the last crisis.

Prof. Dr. Jan Pieter Krahnen: “We want to take a microscopic view of the interbank markets in Germany. Do they still have any meaning in the future – and if so, what are they?”

Jan Pieter Krahnen on the role of the interbank market

The event was rounded off by a lecture from practice. With the example of his own bank, Florian Roßwog from the DZ Bank concerned himself with liquidity control in extreme market situations. His analysis showed that liabilities to non-banks have gained in importance, unsecured financing in bank balances – apart from customer deposits – have been eliminated, and contractually agreed terms on the liabilities side have been shortened.

Florian Roßwog talked about liquidity management in practice.

Franke drew a positive conclusion at the end of the research conference: “The lectures on systemic risk have very clearly elaborated the different approaches to measurement, as well as their strengths and weaknesses. In addition, new insights were conveyed into the drivers of the interbank business.” In short, a real gain in insight for the participants.

Copyright: FIRM

One year after the UK referendum – a Brexit balance

The surprise came overnight, and there was a rude awakening. At 2 A.M., when the first forecasts were published, it still looked like Britain would remain in the European Union. But a next look at the news reports at 6:20 A.M. made it clear: the population of the UK decided to leave, even if the majority was only 52:48. A year has passed since TV cameras from all over the world stood in front of the ECB and journalists wanted to know what was now going to happen and what Frankfurt thinks about it all. London, Brussels and Berlin immersed themselves in consultations. Nigel Farage, the head of the UKIP party that had made Brexit its goal, stepped down. Shortly after, the British Prime Minister David Cameron followed suit.

Our message: Brexit is bad for the UK, it is bad for Europe, and it is bad for Germany. Frankfurt Main Finance (FMF), the voice of Germany’s financial centre, hoped for a different outcome to the referendum, but was also prepared for the results. When these came in, that was the moment to flick the switch. The campaign to promote and advertise our location on the River Main was ready and waiting: as soon as the official referendum result was announced, an information website about Frankfurt went online, a telephone hotline for questions about Brexit was activated, a statement was published on the FMF website, and a campaign started at the same time on Twitter and LinkedIn to spread the word about the merits and advantages of the Financial Centre Frankfurt. The message was clear and relevant: “Welcome to Frankfurt”.

 

Once-in-a-century chance for Frankfurt

On June 24th, interview requests came in from all over the world. The media struggled to understand what had happened and how it would be changing the world we live in. FMF gave interviews in 15-minute intervals: on the phone, in the microphone, on camera, and yet again on the phone… The Brexit vote dominated the news all around the globe. Being in a position to talk while others were still treading their way through channels of coordination and approval gave Frankfurt a key advantage right from the start.

Despite the obvious negative repercussions, Brexit brought the opportunity of a century for the city of Frankfurt and the region. The financial architecture of the European Union was, and up to now, is focused on London. The UK’s withdrawal from the EU – and that was clear straight away – would lead to a relocation of responsibilities and business in the direction of the EU, resulting in a more multipolar financial world. London will undoubtedly remain a major financial centre, but financial centres in the EU will gain enhanced influence – Frankfurt above all. We at Frankfurt Main Finance have never tired of pointing out that it’s not a question of weakening London as a financial centre through our efforts; rather, it’s primarily about installing a stable financial sector within the EU, about building a bridge between London and the EU that starts in Frankfurt.

EBA and Euro clearing are in focus

On day one after the referendum, FMF ventured to make the well-founded estimate of 10,000 jobs that Frankfurt could gain within five years as a result of Brexit – with two essential preconditions: the European Banking Authority (EBA) moves to Frankfurt, as does the lucrative euro clearing market. While the seat of the EBA quickly became a general topic of discussion, it took months before the exceptional importance of euro clearing became clear to the wider public – a rather unwieldy topic at first glance.

The processing of derivative transactions via central guarantee entities, so-called Central Counterparties, and their supervision by the regulator is one of the main ramifications of the financial crisis. When the financial world plunged into crisis, there was in part complete uncertainty as to where the risks were, i.e. who held the actual risks festering in their books at the time. This insecurity led to fear, and the resulting loss in confidence threatened a collapse of the entire system.

Euro clearing: Frankfurt is currently the only real alternative to London

The decision as to where euro clearing operations should be carried out has been recognised as one of the key decisions for shaping the future financial architecture of the EU and Europe, and the issue has been discussed in this vein. And once again, Frankfurt is justifiably confident that it can win the day as the location of choice. Today, in addition to London, only Frankfurt – with the EUREX Clearing subsidiary of Deutsche Börse AG – has a valid licence within the EU and possesses the technical prerequisites, tried and tested in daily operation, to take over euro clearing operations from the City of London. Currently, Frankfurt is already the market leader in the clearing of exchange-traded derivatives. On the other hand, London leads by far in the clearing of euro-denominated OTC derivatives.

This lucrative business will not be able to remain in London as it has. That’s something we stressed at the time and have stressed ever since. After all, the European Central Bank, directly after its founding, wanted the supervisory of such a critical key function for the stability of European financial markets and the euro in its sphere of influence and control. Already now, there are first signs of business moving to Frankfurt, and companies are increasingly testing the clearing opportunities in the Financial Centre Frankfurt.

More uncertainty in the wake of the UK elections

A lot has happened since June 23rd last year. To mention just a few milestones: the British Prime Minister at the time, David Cameron, resigned. He was succeeded by Theresa May. She, who for all intents and purposes counted among those in the remain camp, surprised everyone in her first policy address, with the wording used ever since to illustrate the British posture towards future negotiations with Brussels: “No deal is better than a bad deal.”

The so-called cliff-edge Brexit – the running out of the negotiations on withdrawal scheduled for two years without an agreement being reached – came into view and became the most probable outcome. On March 29th, 2017, the United Kingdom formally requested withdrawal pursuant to Article 50 of the Treaty on European Union. As a result, Theresa May set the countdown in motion for the two-year negotiation period. A few weeks later, she again shocked the world by calling new elections to the House of Commons for early June. The professed goal was to receive a strong mandate for negotiations with Brussels. The calculation didn’t pay off. May and her party are now weakened, with incalculable repercussions for the Brexit process, for financial market participants, and for financial centres.

Frankfurt and Germany offer stability

If, from a European point of view, the result of the UK parliamentary election is interpreted as “a glass half-full”, then a lot of things come into the range of possibility again: even a new referendum with an open end. And even the UK remaining in the EU is no longer completely out of the question, albeit hardly likely.

If we interpret the “glass as half empty”, we are then dealing with a weak government that is only capable of making a few compromises in the upcoming negotiations because it lacks a broad mandate and a robust majority in the UK Parliament. A breakdown of negotiations and even a new election within the two-year period are conceivable. The negotiation programme, which is already ambitious to say the least, seems simply impossible to complete. Extensions, interim solutions and deadlines will probably be the result.

One thing remains certain: the decisions made by companies and by the financial and the real economy, on both sides of the Channel, must now be made under an even greater cloud of uncertainty. This speaks for Frankfurt, and it underlines the strength of Germany and Frankfurt as a refuge of stability and predictability.

Frankfurt exploits its pole position

In a host of banks and across the financial sector, Frankfurt is frequently discussed as a potential candidate for the relocation of companies or divisions. Above all, the Financial Centre Frankfurt boasts a stable economy and stable pro-European political conditions, with an excellent infrastructure, a large number of well-trained workers – especially from the financial sector –, a relatively cheap rental index and cost of living, and a high quality of life.

Metaphorically speaking, all this has brought Frankfurt onto the pole position in the race for the chances in the wake of Brexit. And the Hessian metropolis has been doing full justice to its prominent role up to now. This is shown by the successes achieved so far. Already, a Chinese, Japanese, Indian, Korean and Swiss bank have decided in favour of Frankfurt as their main location in the EU. Goldman Sachs is planning to double its workforce in Frankfurt and Standard Chartered has recently announced its intention of expanding its office in Frankfurt due to Brexit. Around 20 banks are currently in the later stages of talks about either locating or expanding their operations in Frankfurt.

The metaphor of a race also makes another thing clear: the clear winner is uncertain until the finish line is crossed. Frankfurt must continue to promote its merits and advantages and continue to address its weaknesses, rising to the occasion to capitalize on the once-in-a-century chance before it. Ultimately, a number of financial centres will certainly profit from Brexit, but the Financial Centre Frankfurt has every opportunity to become the financial metropolis of the European Union.