By Julia-Ambra Verlaine and Patricia Kowsmann

LONDON--France is shooting down the possibility of relocating Europe's top financial regulator to Frankfurt from London after Brexit, an early sign of infighting over the spoils of Britain's departure from the European Union.

Frankfurt had emerged as the favored location among EU officials for when the European Banking Authority moves from the U.K. after Brexit. But the agency has been caught in a Franco-German power struggle over which country inherits London's financial-services crown once the U.K. leaves.

Countries from Portugal to Denmark are fighting to host the two EU institutions nowbased in London. The hottest prize is the European Medicines Agency, which attracts thousands of experts a year for its meetings and employs almost 900 staff. France is seeking the EBA as it tries to fashion Paris as the bloc's next financial center.

While the EBA is much smaller, its presence in Frankfurt would consolidate the city's status as a financial hub. Earlier this month, Germany's financial watchdog said a double-digit number of banks have indicated that they will move some of their staff to Frankfurt following Brexit.

Because of the French objections, talks among the continent's capitals to move the banking regulator have taken a new turn, and now both Paris and Frankfurt are likely to be out of the picture because of the political controversy that comes with choosing either, according to officials familiar with the discussions.

The French opposition to Frankfurt as the EBA's location emerged under former president,François Hollande. But European officials don't expect the country's new president, Emmanuel Macron, to shift ground on the question, though they haven't received any indication one way or another.

This all leaves the EBA and its more than 150 staff in uncertainty as to where the agency will move. Brussels and Vienna have been tapped as the best next options.

The fight is an example of how, as Brexit negotiations unfold, competition is likely to intensify among the 27 other EU capitals.

European nations are looking to lure businesses and authorities that have to leave the U.K. While some acquisitions are symbolic and matters for national prestige, there are economic benefits. Hosting a regulator means more money for a city's restaurants and an increase in hotel reservations as bankers, lobbyists and officials fly in for monthly board meetings.

There have been no formal EU proposals over where the EBA and EMA ought to be located. Talks are taking place among the EU27 and will likely be decided at a summit of European leaders after a series of behind-the-scenes discussions.

Germany hasn't given up on the prospect of moving the EBA to Frankfurt. Officials say the European Central Bank would also support moving the bank regulator to the same location as its own eurozone bank supervisor, known as the Single Supervisory Mechanism.

The situation creates difficulties for Andrea Enria, chairman of the EBA, who will have to deal with relocating staff and making new hires. Moreover, any lease for the agency's new headquarters needs to be approved by the European Parliament and the member states, a process that can take up to a year, officials say.

The EBA would have to be out of its Canary Wharf offices by March 30, 2019.

Europe's executive arm, the European Commission, has no say in where the EBA will move, despite putting forward proposals beforesummer that will retool the bloc's supervisory architecture. The commission is considering merging the banking regulator with the EU's insurance regulator, currently located in Frankfurt, which made the German city a logical fit to host the EBA.

Brexit spurred the commission to revisit whether the EU's supervisory architecture needed to be tweaked. Born out of the financial crisis, the EU's supervisory system consists of three agencies to oversee insurers, banks, and markets, and is fairly young.

Because of national sensitivities, the bloc's three regulators were split between Paris, London, and Frankfurt. Now Brexit has thrown the balance of power back into question.

Some officials say handing the EBA to Paris would go against the principle of fairly distributing authorities around the bloc. France already hosts the European Securities Markets Authority in Paris and the European Parliament is in Strasbourg.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com

(END) Dow Jones Newswires

May 18, 2017 08:44 ET (12:44 GMT)

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