Felix Hufeld addresses Association of Foreign Banks in Germany

The following is an excerpt from a speech by Felix Hufeld President of the Federal Financial Supervision Authority (BaFin) concerning, amongst other things, Brexit and financial services moving from Longon to mark 35 years of the Association of Foreign Banks in Germany on 30 August 2017 in Frankfurt am Main. The complete transcript can be found here.

Ladies and Gentlemen,

It is now slightly over a year ago that the decision was made in favour of Brexit. I don’t know how you felt about it, but for me Brexit felt like a turning point, possibly the biggest setback in European integration since the European Coal and Steel Community was first founded in 1951. For a long time it looked as though Jacques Delors, former President of the European Commission, had almost set the path of politics in stone with his words “Europe is like a bicycle: you keep pedalling or you fall off.” More and more countries joined the European Union, and more and more responsibilities fell within the remit of the European Parliament and the European Commission.

And not just for the fun of it, or because the political decision-makers felt like it, but because a more connected world called for European, if not global answers. This was true in particular for financial regulation, which is now undoubtedly one of the most rigorously and thoroughly Europeanised legal fields there is. And again, not without reason. In an environment of complex and globally established markets, financial regulation depends on strong European players. The same is true for the member states of the EU, which need the maximum possible level of harmonisation and protection in a single economic area. Furthermore, Europe needs a strong, unified voice in the concert of global standard setting – just think of Basel, for example. This applies all the more if the USA really does decide to proceed down a path of more deregulation and less international cooperation.

As necessary as Europeanisation is in this matter, it also creates friction. We didn’t need Brexit to see that an increasing number of people from many different places were lamenting the apparent dominance of international bodies over national interests.

It would be wrong to look only at other countries or other continents – or only at the filter bubbles on Twitter. Similar expressions of political volition and resentment can be found in Germany, too, both online and in the real world. I don’t find that surprising, either. Concepts that in some speeches are called “an ever closer union” and “European harmonisation” simply mean loss of sovereignty in everyday life at national level.

This becomes particularly relevant when individual European regulations and the national implementation thereof lead to public debates, as we saw recently in the case of the Mortgage Credit Directive, for example. A European directive, the essential goal of which was to protect financial stability, entered into a fraught relationship with the hopes, fears and concerns of individual citizens, for example young families, who expressed these concerns to their representatives in the national parliament, which in this case was the German Bundestag.

This means that even Europe’s ever closer union calls for constant tuning between too much and too little, between bold vision, feasibility and impact analysis, taking particular account of the extent to which different interest groups are affected. And maybe the approach of seeking the greatest possible level of uniformity by trying to spell out each individual detail should give way to a new European conviction of an increased focus on principles. To say it in the language of cycling: The Tour d´Europe has to make headway. But the route and pace must be chosen carefully so that the peloton does not run the risk of failing to keep pace. Or, even worse, that some might want to fall behind.

Ladies and Gentlemen,

As much as I lament Brexit, there is little point in regretting missed opportunities or engaging in Brit bashing. We should look to the future and build a foundation for the time after the United Kingdom’s departure from the European Union. Of course, that will not be an easy task. Above all else the question looms of future reciprocal market access in the relationship between the United Kingdom and the EU27 countries. For the time being we have to assume that the UK will become a third country following Brexit. And that in itself will become an exciting challenge, both for politicians and for financial regulators and supervisors.

It is clear that the existing building blocks for market access based on equivalence, as known from the relationship with Switzerland or Bermuda, cannot be applied to the departure of the United Kingdom. The size of the financial market there and the vast level of mutual economic dependency that has built up over the last decades are alone sufficient as an argument against such an approach.

Just under half of the United Kingdom’s total exports go to the European Union, making the EU the UK’s largest market worldwide. Looking at imports shows a similar picture. The issue is even more complex in the financial sector, because economies of scale caused by historical circumstances have made London the hub for capital flows to the EU. For an industry with such cross-border interdependencies and in which trillions of euros are moved around in cyberspace, dealing appropriately with a situation such as Brexit presents a significant challenge. And there is no master plan, nor an emergency handbook that companies or regulators can simply pull out of their pockets. This is uncharted territory for all of us, and we have to pave our path as we proceed along it.

If we break the bigger regulatory picture down into its individual parts, at first glance the situation looks manageable. But, in actual fact, on many issues the devil is in the detail. Scores of banks are intending to move their offices to Germany and other countries because Brexit will mean that they will lose their European passporting rights that allow them to conduct business in EU countries.

As the passport may only be used by banks authorised in the EU, some branches in EU27 countries will undoubtedly be converted into subsidiaries. In addition to this, there will also be newcomers. Our objective is to provide these banks with guidance for their projects in Germany, offer them legal certainty and, at the same time, ensure the stability of the German financial centre. Moreover, we must make certain that all institutions across the eurozone are supervised and regulated in accordance with the same standards. But another thing is clear: everything we do, we do as supervisors, not as agents for location policy. One thing that we definitely will not accept is the presence of empty shells containing nothing more than a letterbox and a telephone diverting calls to London.

However, there is a broad array of possibilities between letterbox companies and a wholesale move to Germany. We will therefore look closely into each business model and weigh up each legally possible option. We will also keep a close eye on the further development of the European Commission’s proposal to create “Intermediate EU Parent Undertakings (IPUs)”, i.e. single parent companies into which banks from third countries are supposed to bundle their EU subsidiaries in the future.

This discussion is still a long way from being over. First of all, the European legislator needs to introduce the necessary legal requirements during the review of the Capital Requirements Directive (CRD). In this respect, we, as supervisors, would also welcome an EU-wide harmonisation of the rules and regulations on third-country branches, which at present are regulated only at national level.

Would it help financial stability if any cliff effects that might occur in spring 2019 could be effectively minimised? I think so! We are therefore prepared, for example, to relieve banks of work that at short notice is almost unachievable. For instance, we have decided, in agreement with the ECB, to permit internal models for calculating capital in sister companies for a limited time period where these have previously been authorised by the British supervisory authority, the Prudential Regulation Authority (PRA), provided that certain conditions are met. However, the institutions must first of all submit to us the applications required for this, including an action plan. And, of course, binding agreements must be reached regarding specific further activities.

Usually, several supervisory interviews and workshops will be required, in which the models that the institutions have used previously and the structure of possible transition processes will be clarified, step by step. Only after a number of checks will the bank be able to use its internal model in practice. The bank will remain on the radar of ongoing model supervision, however, with the goal of establishing, within a predetermined period of time, a model structure which we have inspected ourselves.

We have already conducted initial workshops with some institutions, and the experiences so far have been very positive. Others are taking their time in letting us know their intentions. I’m sure that everyone in Germany knows the saying “he who comes too late is punished by life”. Supervisors are not that merciless. But I would like to point out that our resources are limited, too. Institutions would do well to submit their applications for authorisation extensions or licences sooner rather than later, and rectify any potentially missing details during a dialog-oriented application process. Otherwise they run the risk of ending up at the back of the queue.

Ladies and Gentlemen,

Another hot topic is that of back-to-back models. Back-to-back here means EU undertakings concluding a transaction in financial instruments and at the same time entering into inverse trading transactions with a company based in London in order to transfer the market price risks. In principle there is no reason to object to this. However, we expect institutions to have adequately trained employees available for such transactions who are able to assess how many risks and which risks – including market risks – are actually being passed on to the UK, or, looking at it the other way around, how many are to remain in the EU. The banks must be in a position to sensibly manage the remaining risks at all times – even if a back-to-back transaction should suddenly no longer be possible or be subject to disruptions. An out of sight, out of mind mentality would be dangerous.

Many institutions find it convenient for their back office and internal control functions, such as risk control, compliance or internal auditing to be carried out largely by a company based in London. The same applies here: in principle, as in many other situations, outsourcing is possible.

As is always the case, however, it comes down to finding the right balance. If an institution goes overboard in outsourcing sensitive areas, the in-house control systems might be thinned out so much that the institution becomes disproportionately dependent on partners in the UK or elsewhere. Simply latching on to group structures will therefore not be allowed. Appropriate control units must be present within the EU undertaking, and all undertakings wishing to move into the EU for the first time should therefore prepare for the fact that these functions are to be present within an institution in the EU27 countries. This corresponds to the line taken by the Single Supervisory Mechanism (SSM), which has already stated its basic position on this – and, of course, we share that view. However, there are possible exceptions to this rule for those subsidiaries which are considered immaterial from a risk point of view.

Limits are set on outsourcing in particular where the core areas of banking and control functions are concerned. And if we look closely at the core areas and control functions, we do this all the more for the management board. The duties of a management board member cannot be fulfilled by “just dropping by”.
It must be ensured that the managers are also able to complete their on-site duties in full. “Fly and drive” might be acceptable in some cases and for a transitional period, but in the long-term we also expect the top level of management to be present in the EU27 countries with more than just a nameplate.

It is not without reason that euro clearing is a hot topic at the moment. After all, more than 95% of all interest rate swaps in euros to date have been cleared through London. If something were to go wrong, a call for help could quickly be made to the central banks to provide liquidity. For this reason, a few weeks ago the European Commission published its ideas for the stricter supervision of central counterparties domiciled outside the European Union.

It is obvious that clearing activities in euros outside the European Union cannot simply be met with a shrug; instead, EU standards for financial regulation and supervision must be enforced in one way or another.

But the question gripping us all is: how, exactly? In the end, the European Commission left this unanswered, but instead suggested a staged process. In my opinion, this is the correct approach. Before making a decision, however, we should take the time to carry out a comprehensive analysis of the systemic risks and weigh up the possible reactions and consequences, including the possible reactions of third parties.

Moreover, we must not forget that nowadays almost all business processes in the financial sector depend on functioning IT infrastructures. As such, it comes with the territory that those banks that are planning a comprehensive division of work between operating units in the UK and the EU need to place a particular focus on their IT systems. These are highly complex platforms, and platforms doesn’t just mean IT. We are talking about knowledge, processes and people which have gathered together over many years, almost like a complete work of art, and now have to be split apart.

Supervisors know the significance of this issue and are prepared to allow old IT ecosystems to continue running for the time being until it is possible for completely new structures to be built and proven to be sufficiently sound. Many a time in the past we saw large IT migration projects being met with delays and unexpected problems, simply because their complexity was underestimated. In theory it would be conceivable to leave such platforms in their former locations entirely, but I have my doubts as to whether this would be of any use in practice. New offices have to be connected to the existing infrastructure in one way or another, meaning that migration processes are likely to remain unavoidable.

The institutions therefore have to carefully weigh up which strategy they wish to pursue: partial or complete relocation. Anybody who has moved house knows that while it is inconvenient, it also offers a good opportunity to declutter. Just as private individuals might get rid of Grandma Edna’s transistor radio, banks can take the chance to modernise old IT systems and processes that have diverged over time.

Yet from the point of view of a New York head office, for example, decluttering might also mean simply focussing completely on the USA or the Far East if the disputes between the UK and the EU27 countries are too drawn-out.

Helaba Financial Centre Study “In Pole Position for Brexit Bankers”

The latest financial centre study by Helaba’s Research unit, which was published today, shows that the German financial centre is in pole position when it comes to competing for businesses and workers looking to relocate from London. A number of banks have already announced that they will relocate jobs from the river Thames to the river Main, which will have an impact on employment figures: “We anticipate that at least half of all financial sector jobs that are leaving London will be relocated to Frankfurt. Over a period of many years, this would equate to a minimum of 8,000 employees. Therefore, by 2019 we see employment in Frankfurt’s financial sector rising by 4 percent to around 65,000 (end of 2016: 62,400). This is despite a simultaneous consolidation process in the German banking industry that is set to continue”, explains Dr. Gertrud Traud, Helaba’s Chief Economist and Head of Research, at the presentation of the study in Frankfurt.

A novelty of Helaba’s long-running financial centre research in this study is its own regional employment aggregate – financial sector employment within “BIG FFM”, an area that was created by transposing Greater London onto the area around Frankfurt. The following picture emerges from this comparison: At the end of last year, around 118,000 people subject to social security contributions were employed in the sector of financial and insurance services, which compares to approximately 360,000 in Greater London. Employment density (in relation to the population), however, is at the same level of just over 4 percent in both conurbations.

The role of the German financial centre as the favourite in the Brexit-related restructuring process is no coincidence: Frankfurt is the leading financial centre in Continental Europe. In terms of relocating jobs from the river Thames to the river Main, the following locational qualities that Frankfurt possesses are particularly significant: the stability and strength of the German economy, the headquarters of the ECB in its dual function as central bank and supervisory institution, the role of the Rhine-Main area as a transport hub with good infrastructure, relatively affordable rates for leasing office space as well as a high standard of living that also offers a varied range of recreational activities in the city and its green environs.

“Since we created our financial centre ranking in 2016, Frankfurt’s relative attractiveness has risen even further”, explains Helaba’s financial centre expert, Ulrike Bischoff. In contrast, it is already undeniable that the City of London has been weakened by Brexit. The continuing high level of uncertainty over future arrangements in the United Kingdom means that it is losing favour among foreign financial centre participants. On top of that, the collapse of the attempted merger between Deutsche Börse and the London Stock Exchange is positive for Frankfurt, since the strong Frankfurt exchange is now able to go its own way. Furthermore, the German financial centre could become even stronger as the European centre for supervision if the EU-wide banking supervisory authority EBA is relocated to Frankfurt.

The relocation of jobs to Frankfurt is shifting the focus onto the regional property market and city’s educational infrastructure, in particular. “In view of a still ample vacancy rate and a number of construction projects underway, satisfying additional demand on the office market should be possible without any difficulty”, expects Helaba’s real estate analyst Dr. Stefan Mitropoulos. On the residential market, though, there is no appreciable vacancy rate. However, the considerable rise in new construction activity, projects planned for the next few years as well as the abundant land reserves available in the surrounding area suggest that there will not be any significant tightening on Frankfurt’s housing market as a result of Brexit. Apart from the real estate market, the range of educational facilities is a key locational criterion. The Frankfurt financial centre region already offers a broad array of international educational establishments that has visibly grown over the last few years. In view of strong demand for school places even beyond the additional demand created by Brexit, there will need to be a further expansion in the infrastructure for children of all ages, including all types of schools.

Dr. Gertrud Traud draws a positive conclusion from the study: “Despite the challenges posed by the impending influx of employees from the river Thames to the river Main, Brexit represents a unique opportunity to improve Frankfurt’s position even further in the competition between international financial centres.”

Download the full study from Helaba here (German).

 

Brexit brings up to 88 thousand new jobs in the Rhine-Main region

WHU study quantifies the Brexit impact on the employment market

New jobs in the banking sector – that’s the expected result of impending relocations from London to Frankfurt. As early as June 24th, 2016, one day after the referendum, Frankfurt Main Finance estimated the potential repercussion of a Brexit decision to be up to 10 thousand new jobs for Frankfurt within the financial sector and its directly related services. Today, some people already regard this figure as too conservative. A job motor can also be expected in other fields, according to the findings of a study by WHU – Otto Beisheim School of Management carried out on behalf of Frankfurt Main Finance. “It will be the multiplier effects on many areas of day-to-day life that will lead to a significant growth in employment above all in the Rhine-Main region,” explains Professor Lutz Johanning, who conducted the study together with Moritz C. Noll from the Chair of Empirical Capital Market Research. In this interview, both academics give us a deeper insight into the underlying calculations.

Prof. Johanning, what exactly is analysed in your study?

Lutz Johanning: We looked at the effects of the relocation of banking jobs in the wake of the Brexit decision on the employment market as a whole – for the City of Frankfurt, the towns and cities in its direct vicinity, and the Rhine-Main region. In the analysis, our focus was on the multiplier effects, i.e. what growth will result for other sectors and industries from an addition to the number of banking jobs. And the study shows that this effect is 2.1 to 8.8 times higher, depending on the area under consideration. Therefore, in the most optimistic case, if we assume ten thousand new bank jobs, up to 88 thousand new jobs can be created during the following four years in the Rhine-Main region.

Prof. Lutz Johanning: “The relocation of jobs doesn’t occur in isolation. People move their lives into a new city – with everything that involves.”

That’s a huge figure. How do you arrive at that result?

Moritz Noll: We extrapolated the existing statistical data on the employment market in Frankfurt and the region into the future with the help of an empirical model, taking the effects of the Brexit into account. To ascertain and arrive at meaningful figures for the purposes of further planning, we placed a high priority on two factors. Firstly, a valid data basis has been very important for us. Our study is therefore based on employment market data from the German Federal Employment Agency (BA) covering the past nine years. Secondly, we looked for statistical models that have already been effectively applied in the scientific community.

Moritz C. Noll: “Even though the Brexit is a unique occurrence, scientifically based models still exist that enable the repercussions for the employment market to be reliably assessed.”

Where did you find an appropriate solution? After all, the Brexit is an unprecedented event.

Noll: The Brexit is indeed unprecedented, but not the fact that jobs are moved to a new location as the result of changed basic conditions. There are, for instance, well-founded scientific analyses for the energy sector in the USA – bear in mind the topic of fracking. The resettlement of jobs to new locations is quite common in this context. The resulting repercussions, not only for the primary sector affected, but also in terms of the overall impact on a region have been frequently examined during the last few years. These models allow specific assumptions to be derived on which we have based our study.

Johanning: The indirect effects can be quantified with this approach. If a job at Bank X is moved from London to Frankfurt, this is not an isolated process. Rather, the person who occupies this position relocates his life into a new city – with everything that involves. He or she usually comes with a family, which means that all the corresponding needs have to be met. This begins with quite simple issues such as residential needs, schooling, training, and the requirements of daily consumption. But it also has wider structural implications – the keywords here are infrastructure, the educational system, the market for houses and flats.

Prof. Lutz Johanning: “The Rhine-Main region in particular will profit from the growth in jobs. Most of the additional jobs outside of the financial industry are more likely to occur in the areas around Frankfurt.”

Why are you so sure that the affected bankers will be transferring their primary place of residence to Frankfurt? After all, London isn’t all that far away.

Johanning: The same discussion took place a number of years ago in connection with the European Central Bank employees. The question then was also whether people will actually be moving to the Rhine-Main region or whether they will just be here to work. Experience shows that they come here to work and to live. That’s why this particular context has provided a best-practice example for many years, and this has served as an orientation for us in the study.

You have differentiated in your analysis – between Frankfurt, its immediate environs, and the region. What does this distinction reveal?

Johanning: Frankfurt will profit directly from the new jobs in the banking sector. That’s not a regional issue. The central office sites will be found in the city centre. Consequently, the effect here on other parts of the economy is also modest, around 2.1- to 3.4-fold. Bank-related services will also benefit during the course of development; but these services are often not located directly in the city, but in the immediate surroundings like Eschborn, Offenbach or other neighbouring cities. In addition, many people are looking for somewhere to live somewhat outside of Frankfurt. That, in turn, will benefit the neighbouring municipalities as well as the entire region. The larger the radius drawn, the more differentiated the effects and the greater the multiplier effect. Optimistically speaking, ten thousand new bank jobs in the city can generate up to 88 thousand new jobs in the Rhine-Main region.

The study mentions two models. What does that mean exactly?

Noll: We’ve made use of two models to assess the impact of the ten thousand new jobs in the financial sector on all the other industries. Model 1 takes a factor into account that dampens the growth effect to a greater degree. Model 2, on the other hand, does not include this factor, and the growth is estimated to be higher overall as a result. It was important for us to present the entire spectrum of possible results in the study.

You know the statistics in detail. In which industry will the effects have the greatest impact?

Johanning: It should be said to start with that Frankfurt is a region with a very high growth rate – even without the Brexit. The highest growth rates over the past few years have been recorded in the sectors of logistics, real estate and business services. These growth industries will be given an additional push through the Brexit effect. What cannot be deduced from our quantitative model, however, is which structural changes within the individual industries will lead to greater or less growth over the next few years.

Noll: In a further step, we examined with the help of our models how the long-term job growth rates differ with and without the Brexit. As a result, we were able to show that the long-term growth path is changed by an initial shock, i.e. the relatively sudden event of additional jobs flowing into the financial industry caused by the Brexit. This means that job expansion throughout the employment market as a whole can be significantly higher in the long term in the Brexit case than in a case without additional Brexit jobs. One can therefore see that the growth effects on the employment market can be markedly higher than the initial effect might lead us to expect. So there’s still room for growth and untapped potential.

Moritz C. Noll: “If we also take the long-term effects into account, even better figures are possible.”

So the upshot is even more growth for an already prospering region. Have you also been able to quantify in the study how local government tax revenues will change as a result?

Johanning: We’ve attempted to estimate this effect as well with the aid of a simple projection, at least for the Frankfurt city area. However, these results should be considered with caution since they are based on the previous results from the employment market forecasts, which inevitably results in additional inaccuracies. We looked at the local government share of the income tax, the value-added tax and the local business tax. In summary, we estimate that the City of Frankfurt will be able to earn between EUR 136.2 and EUR 191.9 million in revenue every year through the three above-mentioned tax forms as a result of the additionally created jobs.

Thank you for the interview.

Winning Frankfurt: Brexit Bankers’ Welfare Effect Beyond Bringing Their Jobs

Picture credits: fritzphilipp photography 

“We are doing everything we can to create additional living space”

The Financial Centre Frankfurt is poised for a sudden upsurge in its population. How can enough living space be created to meet such an influx? Here is an interview with Mike Josef, head of the city planning department.

Experts are anticipating a figure of 6,000 to 10,000 new jobs that will come about alone in the banking sector in the wake of many companies relocating from London to Frankfurt. How is the City of Frankfurt dealing with the concurrent need for more housing space?

Mike Josef: We are boosting residential construction, first of all by allocating areas as new building zones. Whatever happens in detail, Frankfurt am Main is expecting a strong population growth over the next few years. Depending on the projection one believes, the expected figures for the year 2030 are in the direction of over 840,000 inhabitants, but they differ from one another by more than 100,000. This shows the level of uncertainty endemic in such forecasts. Moreover, the estimated number of jobs that could be relocated to Frankfurt is subject to change. For those coming to Frankfurt in the wake of the Brexit decision, we have built up an extensive range of offers in this segment over recent years. Of prime importance now is to provide the broader middle class with affordable living facilities and offer these people a future in Frankfurt. That’s why I’m making a special effort to promote the building of low-cost homes and apartments, a segment where construction has been disproportionately low during the last few years.

A new city district is being planned near Steinbach. In terms of the resulting living space and the time scheduled for the project, is this enough?

Josef: It goes without saying that one element alone is not sufficient to create sufficient living space for what is a growing Frankfurt. We are therefore exploiting all options at our disposal to create additional homes. This includes inner urban development, i.e. the conversion of office buildings or entire land areas, as we are doing in the former Niederrad office district or setting in motion on the Römerhof. Further options being deployed are redensification, where this is compatible for the environs and the environment, and the consolidation or border realignment of existing city districts. Because this is not enough, we also have to expand outwards, i.e. we have to build on previously undeveloped sites.

What other aspects have to be considered in such a project as regards infrastructure?

Josef: It’s important that the infrastructure is complete and ready to use before the first residents move in: roads, squares, parks and local public transport must be available, and this also applies to the social infrastructure. This embraces, for example, day nurseries, schools, youth centres and facilities for senior citizens, along with the necessary cafés, bars and restaurants and local shopping amenities. We must now determine the precise extent of the infrastructure facilities we need in the new district during the course of our further planning.

Thank you for the interview.

Picture credits: City of Frankfurt

Brexit bankers bring more welfare effects to Financial Centre Frankfurt and the region than just their jobs

New jobs in the banking sector – this is the expected result of relocations from London to Frankfurt. Well-founded estimates speak of ten thousand additional jobs within the next four years. The overall increase in job growth associated with Brexit is significantly higher because multiplier effects cause growth in other industries as well, according to the findings of an academic study conducted by WHU – Otto Beisheim School of Management on behalf of Frankfurt Main Finance.

“We investigated the effects of the relocation of banking jobs as a result of Brexit on the entire labour market for the city of Frankfurt, the neighbouring cities and the Rhine-Main area,” says Prof. Dr. Lutz Johanning, one author of the study. “Our study shows that the multiplier effect is between 2.1 and 8.8, depending on the area examined. If we consider adding 10,000 new jobs in the banking industry over the next four years, then, according to our prudent estimate, an additional 21,000 jobs could be created in Frankfurt City. In the optimistic case, this could result in up to an additional 88,000 new jobs in the Rhine-Main region.”

Moritz C. Noll, co-author of the study, says, “With our models, we demonstrate that the long-term growth trajectory is changed by an initial shock, in other words, the additional jobs in the finance sector due to Brexit. Thus, we argue that the growth effects on the labour market can be significantly higher than the initial effects suggest. There’s still room for further gains.”

Hubertus Väth, Managing Director of Frankfurt Main Finance, says, “The job growth will further advance the economic strength of Frankfurt and the region. A real success story for all parties involved. Now, it is important to absorb and shape this growth positively. That is a challenge. However, the additional jobs also bring the funds to invest and master the challenge.”

Based on the assumption that 10,000 financial sector jobs will relocate to Frankfurt due to Brexit, this also results in additional tax revenues for the city of Frankfurt. In the conservative scenario, the net gain from income, value-added and local business taxes is around 136 million euros per year, while the optimistic scenario would yield nearly 192 million euros.

Winning Frankfurt: Brexit Bankers’ Welfare Effect Beyond Bringing Their Jobs

“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.

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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.