Will London Lose Power to a Euro Bank Bloc?

In what would be the first step toward a European banking union, the European Central Bank will become the main regulator for the biggest banks in the 17 nations that use the euro as their currency as soon as Jan. 1. Britain, a member of the European Union, chose not to join the euro zone when it was established in 1999, and has said it won’t take part in a banking union. That decision risks isolating London from its major trading partners and undermining its status as the world’s top money center. “If there is a European banking union and a notable missing member of that is the U.K., then that will likely hurt London as a major financial market,” says Jay Ralph, a management board member at Munich-based Allianz, Europe’s largest insurer.

London, the world’s biggest center for foreign exchange trading, cross-border bank lending, and interest rate derivatives, has 251 foreign banks and more international financial firms than any other banking hub, including New York or Frankfurt, according to TheCityUK, a bank lobbying group. The City and Canary Wharf, London’s financial districts, are home to three-quarters of the EU’s foreign exchange trading, including 42 percent of euro trades. Financial sector jobs have been disappearing in the wake of the credit crisis, with the Centre for Economics and Business Research saying employment will fall to a 20-year low of 237,000 in 2013.