By Andreas Framke and Frank Siebelt
FRANKFURT (Reuters) - Banks seeking to leave London because of Brexit are already holding talks about moving to Frankfurt but they will not be offered any special exemption from the regulations, a senior board member of Germany's central bank told Reuters.
Banks moving to the continent will likely settle in a number of cities rather than create one new financial hub to rival London, Andreas Dombret said in an interview authorized for release on Wednesday, the day British Prime Minister Theresa May was due to formally launch two years of divorce negotiations.
"Many banks interested in Frankfurt have knocked on our door and I’ve had a lot of interesting discussions," said Dombret, the Bundesbank's top supervision expert.
"I do not expect all banks to move to the same city on the continent. They will certainly spread out a little bit."
Competing with other financial hubs such as Paris, Milan, Amsterdam or Dublin, Germany's financial center hopes to attract banks currently based in London that move staff and some operations to continental Europe.
But Dombret, 57, whose term at the Bundesbank ends next year, said Germany would not offer banks any favors to come to Frankfurt, which is home to the European Central Bank, Deutsche Bank <DBKGn.DE> and Commerzbank<CBKG.DE>, maintaining its strict standards.
"We will not allow regulatory arbitrage. You may outperform the rules, but you must not underperform," Dombret said, adding that the Bundesbank would not be marketing Frankfurt.
Banks seeking to operate in the European Union need regulatory permission - known as the 'EU passport' - and must set up a regional headquarters in at least one EU member state.
The European Central Bank, which oversees the biggest banks in the euro zone, has said that only a handful of banks have so far indicated that they plan to move some operations, but dozens have made inquiries.
Dombret, a former investment banker who joined the Bundesbank's board seven years ago, said he did not believe Brexit would kick-start a much-needed wave of consolidation in Germany's fragmented financial industry, adding that he expected no increase in pressure on domestic banks from global players.
"I do not believe that. Ninety-nine percent of German banks are not competing with the banks that may come here," he said, arguing that most of the 1,900 German lenders are smaller savings and cooperative banks mainly focused on retail business.
(Reporting by Andreas Framke; Editing by Gareth Jones)