29/07 | by Kitty Miv, Editor - During a year in which most banks saw recovery from the dark days of 2008, European 'offshore' banks suffered from a flight of capital to Hong Kong and Singapore. The McKinsey figures are borne out by reports from Jersey that less 'retention' (withholding) tax was garnered under the EU's Savings Tax Directive (STD) in 2009 than in 2008. This doesn't betoken immediate problems for Jersey and Guernsey, both of which in fact reported increased banking assets in 2009, but it should give pause to the EU legislators who are systematically damaging the region's banking sector. Continued, below

Continued, from above. The STD was the first of the major disincentives put in the way of capital formation in Europe; now that the powers that be in Brussels have belatedly realized this, they are trying, unsuccessfully of course, to persuade the rest of the world to join in their madcap scheme.

But not content with driving away private capital, the pea-brained 'communautaire' EU establishment is now trying to drive away the banks themselves with rafts of restrictive legislation and punitive taxation regimes. And of course for the last ten years the high-taxing member states of the EU have been engaged on a campaign to throttle the low-tax jurisdictions which had been acting as a safety-valve for discontented HINWIs.

What in their unwisdom they don't realize is that, while countries are fixed in position, capital, banks and depositors are all of them mobile. The private wealth sector is like a super-tanker, taking a very long time to change direction, but unstoppable once it has done so.

There is quite a generational effect going on here, as well. After the second world war much wealth was sitting in Switzerland because for rich Europeans that country had for fifty years been the only stable and safe place for them to keep their money. But Switzerland has, perhaps foolishly, or perhaps unavoidably, allowed the EU to nibble away at its independence and its banking secrecy.

Now, the rich young children of those conservative European bankers and industrialists have a wider vision, and for them independent city states like Singapore and (pace China) Hong Kong have a greater allure than the fading Helvetic Confederation.

As for the banks themselves, they all opened branches in Hong Kong decades ago, so they are ready and waiting for the influx. It's nothing to them that assets take wing from their Andorran and Manx branches and alight on the Peak. It takes just a microsecond nowadays.

Ciao, Kitty.