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Deutsche Bank Shifts Half Of Its Euro Clearing To Frankfurt

With Brexit on the horizon, the many banking firms that require direct access to the European Union are moving from their offices in London to more friendly jurisdictions. The latest firm to make the move is Deutsche bank which announced that half of its euro-clearing activities will now be based in Frankfurt, Germany.

This is a big win for the Deutsche Borse, which has been struggling to get a piece of the pie. Clearing euro-denominated interest rate derivatives is a profitable business, which has caused stiff competition amongst banks, regulators, and exchanges who want to capture as much business as possible.

The London Clearing House (LCH) was the market leader in the clearing business and processed up to €1 trillion worth of deals per day.

However, the dominance of the LCH is now under threat as the Deutsche Bank relocates. It is one of the five largest clearers of interest derivatives, though it never revealed the volume of its clearing. The move to Frankfurt is to ensure that the processes are not disrupted by the upcoming exit of the UK from European Union.

In a statement, Olaf Scholz, Germany's finance minister, said

To minimise risk for financial stability, it is indispensable that the clearing of euro-derivatives is subject to strong regulation and supervision in full conformity with EU standards

Deutsche Bank's move to Frankfurt makes is a big statement for the banking industry as other banks are set to follow its lead.

A Ripple Effect On the Industry

The London Stock Exchange Group who is owner of the LCH stated that Brexit would cause London to lose its status as a euro clearing hub. This means a loss of up to 100,000 jobs. However, Deutsche Bank played down the importance of the move by stating that the move would not result in a loss of jobs in London as the same employees would be in charge of the albeit from a different location.

Although euro clearing would only directly move a few hundred jobs, the indirect effects of the move can be great. Frankfurt itself has been losing a lot of business to London for the past thirty years and saw the Brexit move as the best way for it to get it back. There are a reported 29 banks who are seriously considering moving out of London and amongst them are industry leaders like JPMorgan and BNP Paribas.


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