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Will Brexit Trigger Exodus of Banks From London?: QuickTake Q&A

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Photographs: Bloomberg, Photo Illustration by Tom Hall/Bloomberg
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London has flourished as a financial center over the past two decades in part because global banks could sell their services freely around the European Union’s 28-nation trading bloc from their offices in the City of London. Now that British voters have elected to leave the EU, and Prime Minister Theresa May says that will mean withdrawing from the single market, London’s status as a worldwide banking hub is under threat. If Brexit curtails U.K. firms’ access to Europe’s $19 trillion integrated economy, London becomes a far less attractive place from which to do business. 

An obvious candidate is clearing, a service provided to help traders complete their transactions safely and at the price at which they were executed. Clearinghouses such as those that call London home collect fees to act as intermediaries between buyer and seller, requiring traders to post collateral -- cash or bonds -- as a cushion against losses and potential defaults. If the U.K. were stripped of the right to clear euro-denominated derivatives, 232,000 British jobs could be at risk, according to London Stock Exchange Group Plc Chief Executive Officer Xavier Rolet. Other bank businesses that could be part of an exodus from London include euro-denominated derivatives and corporate bonds, while specialties such as commodities and foreign exchange would likely stay in London no matter what, according to a report by the Boston Consulting Group.