German banks switch trade from City

Three German banks dealt a blow to the City yesterday by announcing that they would switch some of their trading operations to Frankfurt, writes Diane Coyle.

The announcements follow a recent Bundesbank decision to remove its minimum reserve requirements on short-term securities repurchase agreements. Deutsche Bank, Commerzbank and BHF Bank said they would repatriate their trading in Deutsche mark repos to Frankfurt, although it is believed that the three banks between them employed only a handful of specialist repo traders.

The Bundesbank's new policy, which came into effect on 1 January, has levelled the playing field between Frankfurt and London. The decision is also likely to have been influenced by fears that the UK will not join the single currency.

Yesterday's announcements will concern those who fear that the UK's lukewarm attitude to economic and monetary union will damage the City's position as a financial centre.

The battle to ensure that banks based in London can be full members of Target, the inter-bank payments system, even if the UK stays out of the single currency, has already been lost.