By Maya Nikolaeva and Huw Jones
PARIS/LONDON (Reuters) - The surprise decision to move the European Banking Authority to Paris will boost its chances of attracting London banks after Brexit, French officials said on Tuesday.
Paris won over Dublin in a lucky dip after a voting run-off produced a tied result on Monday evening. Frankfurt, seen by many as favourite, did not even make it to the final two in the battle to replace London as home to the organisation that sets banking rules across the bloc and employs 185 people.
Frankfurt and Paris are at the forefront of the race among European cities to attract London businesses that need an EU hub to continue serving customers in the bloc after Britain leaves in March 2019. Goldman Sachs <GS.N> has said it will make Paris and Frankfurt its European hubs after Brexit.
French Finance Minister Bruno Le Maire said the decision to put the EBA in Paris sent exactly the sort of signal that big banks such as Goldman and Morgan Stanley <MS.N> were waiting for.
"It's a very strong signal, firstly that financial stability will be decided in Paris," Le Maire said on the sidelines of an innovation conference at the Finance Ministry.
"The second signal, which I think is excellent news for Paris, is that Paris will become one of the big European financial centres, if not the biggest. It's also a signal to big international institutions."
Le Maire said the government still had to take several important decisions, notably on labour costs, but that he expected many big banks to come to Paris.
Bagging the EBA marks an unexpected win for the French capital, given that its bid was among the least generous financially.
It is also unusual because it puts two such regulators in one location, joining the European Securities and Markets Authority (ESMA) and prompting some officials to speculate that they could cooperate more closely to exert greater influence.
"Personally, I'm very happy with this decision. Paris was top of my list," said EBA spokeswoman Franca Rosa Congiu.
Though the EBA employs only 185 staff, it plays a core role in turning EU banking law into rules for supervisors to enforce. It also runs the biannual stress test of leading EU lenders.
While Paris revels in its victory, Germany was left licking its wounds after a setback to both the country and its Chancellor, Angela Merkel. The German Premier had called for the watchdog to be based in Frankfurt, which is already home to the European Central Bank (ECB).
"We would have preferred a different decision because we believe that Frankfurt, all things considered, best meets the criteria stipulated," said Lutz Raettig, president of the lobby group Frankfurt Main Finance.
Gerhard Hofmann, a member of the board of the National Association of German Cooperative Banks, said the EU was missing out on an opportunity to move the EBA close to the ECB.
"In light of the fact that there is great overlap in the mandates of both institutions, as well as the significance of Frankfurt as a banking and financial capital in Europe, Frankfurt was well positioned," Hofmann said.
But Volker Bouffier, prime minister of Frankfurt's home state of Hesse, said the city would remain "the most significant financial capital on the European continent" regardless.
"A host of banks have already announced their intentions to base themselves in Frankfurt or expand there," he said. "We are sure that we will continue to be successful on that front."
Nonetheless, the win is a considerable boost for France.
"We thought that we had lost the battle against Frankfurt, but this big win establishes an equilibrium between the two," one French banker said.
Former Bank of France Governor Christian Noyer said in France's bid that the banking agency and market watchdog ESMA would be able to work together more closely.
"There is a good reason for satisfaction that it will allow synergies with ESMA. There are clearly some points of convergence," another French banking source said.
ESMA, which employs 270 permanent and temporary staff, must review its offices by 2019 when its lease runs out.
Setting up alongside the EBA could allow both to save on back-office services and foster a closer relationship.
(Additional reporting by Leigh Thomas in Paris and Tom Sims in Frankfurt; Editing by John O'Donnell and David Goodman)