LONDON (Reuters) - France will likely win Britain’s financial services crown in the European Union after Brexit, which leaves the bloc’s economy more reliant on struggling euro zone banks, New Financial think tank said on Tuesday.

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Brexit will most likely lead to a shift in the tone and direction of policy on EU capital markets and the loss to the EU of much of the markets and regulatory expertise that has built up in the UK over many decades, New Financial said in a report.

Swathes of EU capital markets activity will effectively be based offshore in the UK, particularly in sectors such as trading and asset management.

“In short: EU capital markets will be significantly smaller and less developed than they are today, and the EU economy will be even more reliant on a struggling banking sector than it is today,” New Financial said.

Britain’s departure from the EU will mean the bloc losing its biggest financial center, though over 300 asset managers, trading platforms, banks and insurers operating in Britain have already opened hubs in the EU to cope with any form of Brexit.

New Financial said Britain accounts for nearly a third of all EU capital market activity, more than France and Germany combined.

Losing Britain means that the EU’s share of the global capital market will fall from 21% to 14% or one-third of the size of the United States or equivalent to China.

Capital markets, such as funds raised from issuing stocks and bonds, ease an economy’s reliance on bank loans.

(GRAPHIC: The reliance on bank lending - )

France and Germany will have a “duopoly” in 21 out of 24 activities like derivatives trading, banking, venture capital and forex trading, with France the largest in many of the most important sectors.

The EU has approved several laws to create a capital markets union (CMU) to encourage companies to raise more funds by issuing shares or bonds and reduce reliance on banks.

A CMU in which the largest market is France is likely to look very different to a CMU in which the largest market is the UK, the report said.

“This supports France’s pitch to be the biggest financial center in the EU on the other side of Brexit,” New Financial said.