HSBC and JP Morgan Chase & Co are reportedly considering moving parts of their operations to Luxembourg amid concerns over Britain's possible exit from the EU and tougher banking rules.
British banking giant HSBC is understood to have told the Treasury it is looking at moving its headquarters to the tax haven as part of a review of its domicile, according to The Times.
The group announced a review of whether it should move its HQ away from the UK at its shareholder meeting in April, citing regulatory and structural reforms. It is set to make a decision by the end of the year.
US group JP Morgan is also believed to be preparing the latest blow to the City by looking at setting up a new Luxembourg-based bank to handle the clearing of eurozone transactions - a move seen as paving the way for it to shift more business out of the UK.
It is reportedly weighing up the impact in the event of a Brexit after the in/out referendum, as well as new rules forcing more euro-related transactions to be conducted within members of the eurozone.
But a decision to base the new unit in Luxembourg is not expected to lead to a large number of jobs moving to the country and JP Morgan is seen keeping its European HQ in London.
There are fears of a banking exodus in the City due to costs of the UK bank levy, a potential Brexit and the impending ring-fencing of retail and investment banking operations.
Chancellor George Osborne failed to deliver the expected retreat on the bank levy in his annual Mansion House speech last week, despite it being widely anticipated.
The speech came just a day after HSBC announced up to 8,000 job cuts in the UK out of 25,000 worldwide and said it would rebrand its British high street operations amid changes to meet the ring-fencing rules.
While Luxembourg is said to be under consideration by HSBC, it is still thought that it would be most likely to relocate to Hong Kong should it decide to move its HQ.
But countries are apparently vying to be the new home for the bank, according to a recent Sky News report revealing that HSBC chief executive Stuart Gulliver told staff that even Jamaica contacted the bank asking to be considered as a new HQ location.
JP Morgan was not immediately available for comment and HSBC declined to comment.