There has been a great deal of debate recently about the availability and desirability of various financial instruments to deal with the fallout from the Corona crisis.
MiFID II, together with MiFIR (Regulation (EU) No 600/2014), was intended to create a more transparent, competitive and integrated financial market in the EU by reducing trading outside regulated markets, increasing protection for investors and consumers, and improving financial stability.
The UK might appear to have the most to lose from Brexit if City firms find it harder to sell financial services into the EU. But London has actually consolidated its position as the world’s leading financial centre since the vote to leave, helped by strong signals that the UK at least will keep its markets open. The EU should follow this lead.
Financial firms serve many useful functions which individuals and households could scarcely undertake on their own. These functions include maturity transformation, matching lenders and borrowers at low cost, facilitating the transfer of risk and consumption across time and between people, monitoring, and diversification of investments.
A ‘free’ banking system without a central bank provides incentives for banks to act with restraint. Their lending policies are, in effect, tied to each other. If one over-reaches, it will be pulled back as others present notes to and demand reserves from the bank that is lending recklessly.
As the world’s leading international financial centre, London faces fascinating opportunities as well as some significant challenges in coming years. This is as a result of Brexit, increased international competition from other global financial centres, such as New York, and the changing face of finance itself.