Edward Gibbon wrote about the decline and fall of the Roman Empire and, for a few years now, I have been thinking about whether London can continue its dominance as an important financial centre. I am starting to think that we might be witnessing the decline and fall of the London empire. In a way, London is a city-state which bears little resemblance to the rest of the country. The European Banking Authority has become a Rottweiler and is insisting that, from next year, any banker who earns more than €500,000 will be affected by a EU-wide bonus cap. Such employees will have variable pay restricted to the same level as salary, or twice that level with explicit shareholder approval.
If implemented in full, this law would have two clear consequences. First, the compensation of London-based bankers would shrivel. Secondly, most investment bankers would want to work for non-European institutions and work outside Europe. Surely, New York, Hong Kong, Singapore and Dubai will all benefit at the expense of London. Of course, not all cities welcome the financial sector with open arms. A well-connected source recently told me that Singapore was becoming less keen on expanding its banking sector because the total assets of its financial services sector were ballooning as a percentage of overall GDP.