More financial institutions than initially expected are likely to leave London due to Brexit, because the cost of keeping operations in London will be too high, according to the chairman of French bank Société Générale SA.
In an interview with financial daily Les Echos, Lorenzo Bini Smaghi said that while the U.K. wanted to maintain the current system in place, the ECB wanted banks to transfer their trading and risk control operations to the continent.
"For European and American banks, having a subsidiary in London will be much more expensive in terms of liquidity and risk controls than today," he told the paper.
"All of this will have a cost for Europe, especially as Europe's capital markets are not yet developed enough to serve as an alternative to London. The cost of capital is therefore likely to increase and this will ultimately be paid by customers."
Following the U.K.'s decision to the leave the EU after a referendum in 2016, banks and financial institutions have been ensuring they will be able to continuing operating in the EU post-Brexit by opening up offices on the continent.
Bini Smaghi said he expected U.S. banks to transfer some of their business to the U.S. because it would cheaper than strengthening their position on the European market.
He also said European banks operate at a disadvantage to U.S. peers because of the European regulatory and political framework and said he had expected more progress in the EU's banking union by now. Initiated in 2012, the project, which envisions a shared deposit guarantee scheme among other things, is still not complete.
Consolidation
European regulators have called for more consolidation within the EU's fragmented banking sector, but Bini Smaghi said current regulations made it difficult to move money around the EU and were a "concrete obstacle" to mergers.
There have been reports that SocGen was interested in a tie-up with Italy's UniCredit SpA, but Bini Smaghi said the bank was not open to such a deal at the current time. But in general, SocGen's size is an advantage in positioning itself as a consolidator, he said.
Europe needs banks that want to grow to compete against Chinese and U.S. banks, but the regulatory and political conditions are not yet in place, he told the paper.
The European Commission will change its president in 2019, as will the ECB, and Bini Smaghi said he would like to see women take the top jobs.
"European leadership might be stronger if we had a German and a Frenchwoman in these key jobs. With an economy that may be facing a more difficult situation, new tensions between China and the U.S., a strong Europe is needed," he said.
'Gilet jaunes'
France's government recently backtracked on raising a fuel tax in 2019 after the proposed increase ignited the "gilets jaunes," or "yellow vests," movement, named after the high-visibility vests worn by protesters who have taken to the streets throughout France.
The movement has evolved into a general discontent against high taxes, low salaries and weak purchasing power, and the government has raised the minimum wage and canceled a planned rise in social security payments for pensioners to appease protesters.
France's President Emmanuel Macron has introduced reforms to make France more business-friendly since coming to power in May 2017, and Bini Smaghi said there was a danger that the movement would put the reform program on hold.
"The reforms go in the right direction, but they are not revolutions when one thinks of the problems remaining in France in terms of public spending or labor market reform," he said.
"The risk is that the 'yellow vests' movement stops the reforms that France still needs — such as pensions, for example."