Financial centre

"International finance centre" redirects here. For the landmark in Hong Kong, see International Finance Centre. For a banking location, see Branch (banking).
Not to be confused with Financial capital.
The City of London is one of the oldest financial centres and today remains at the heart of London's financial services industry.[1]
New York City's Financial District in Lower Manhattan, which includes Wall Street. Many financial firms have expanded northward to Midtown Manhattan.[2][3]

A financial centre is a location that is home to a cluster of nationally or internationally significant financial services providers such as banks, investment managers or stock exchanges.[4]:1 A prominent financial centre can be described as an international financial centre or a global financial centre and is often also a global city. An offshore financial centre is typically a smaller, low-tax jurisdiction that primarily serves non-residents.

Background

Financial centres are locations with an agglomeration of participants in financial markets and venues for these activities to take place.[5] Participants can include financial intermediaries (such as banks), institutional investors (such as investment managers), as well as central banks. Trading activity may take place on venues such as exchanges and involve clearing houses, although many transactions take place over-the-counter (OTC), that is directly between participants. Financial centres may host companies that offer advisory services, for example relating to mergers and acquisitions, or which participate in other areas of finance, such as private equity and reinsurance.

Financial centres serve the domestic business of their home country and may also serve international business. International activity occurs when one or more of the participants in the activity is foreign to the home country of the financial centre, or when the instruments themselves are international in nature such as Eurobonds. The term international financial centre or global financial centre is sometimes used to indicate a prominent financial centre where such international or cross-border business takes place.[6][7]

A paper by the International Monetary Fund offers the following definition:[8]

International Financial Centers (IFCs)—such as London, New York, and Tokyo—are large international full-service centers with advanced settlement and payments systems, supporting large domestic economies, with deep and liquid markets where both the sources and uses of funds are diverse, and where legal and regulatory frameworks are adequate to safeguard the integrity of principal-agent relationships and supervisory functions.

The older financial centres, such as London, Amsterdam, Paris and New York, have long histories;[9][10] today there are a diverse range of financial centres worldwide.[11] While New York and London often stand out as the leading global financial centres,[12][13] other established financial centres provide significant competition and several newer financial centres are developing.[14] Despite this proliferation of financial centres, academics have discussed evidence showing increasing concentration of financial activity in the largest national and international financial centres in the 21st century.[15]:24–34 Others have discussed the ongoing dominance of New York and London and the role linkages between these two financial centres played in the financial crisis of 2007–08.[16]

Ranking

Prior to the 1960s, there is little data available to rank financial centres.[4]:1 In recent years many rankings have been developed and published. Two of the most relevant and widely referred to are the Global Financial Centres Index and the International Financial Centres Development Index.[17]

Global Financial Centres Index

The Central District of Hong Kong, one of the main financial centres in Asia, seen from the Peak.

The Global Financial Centres Index is compiled semiannually by the London-based British think-tank Z/Yen and is sponsored by the Qatar Financial Centre Authority. London is currently the top-ranked centre, having occupied the top spot from the inception of the index in March 2007 to September 2013, and again from September 2015 to the present.[18] New York was ranked top from March 2014 to September 2015.[19][20] As of September 2015, the top ten centres worldwide according to the Global Financial Centres Index are:[21]

Rank Change
Centre
 Rating
1 Increase 1 United Kingdom London 796
2 Decrease 1 United States New York City 788
3 Steady Hong Kong Hong Kong 755
4 Steady Singapore Singapore 750
5 Steady Japan Tokyo 725
6 Increase 1 South Korea Seoul 724
7 Decrease 1 Switzerland Zurich 715
8 Increase 3 Canada Toronto 714
9 Decrease 1 United States San Francisco 712
10 Increase 2 United States Washington, D.C. 711


International Financial Centres Development Index

Frankfurt's Bankenviertel (banking district), home of the European Central Bank.

The International Financial Centres Development Index is compiled annually by the Xinhua News Agency of China with the Chicago Mercantile Exchange and Dow Jones & Company of the United States, and is known as the Xinhua-Dow Jones International Financial Centers Development Index. New York has been the top-ranked centre since inception of the index in 2010. According to the 2014 Xinhua-Dow Jones International Financial Centres Development Index, the top ten financial centres in the world are:[22]

Rank Change
Centre
 Rating
1 Steady United States New York City 87.72
2 Steady United Kingdom London 86.64
3 Increase 1 Japan Tokyo 84.57
4 Increase 1 Singapore Singapore 77.23
5 Decrease 2 Hong Kong Hong Kong 77.10
5 Steady China Shanghai 77.10
7 Steady France Paris 64.83
8 Steady Germany Frankfurt 60.27
9 Increase 2 China Beijing 59.98
10 Decrease 1 United States Chicago 58.22


Comparisons

The New York Stock Exchange on Wall Street, the world's largest stock exchange per total market capitalisation of its listed companies.[23]
The London Stock Exchange in the City of London, the most international stock exchange and the largest in Europe.[24]
The International Finance Centre in Hong Kong which opened in 2003.
The Tokyo Stock Exchange, the largest stock exchange in Asia.[24]
The Frankfurt Stock Exchange building, which dates back to 1879.[25]

Comparisons of financial centres focus on their history, role and significance in serving national, regional and international financial activity. Each centre's offering includes differing legal, tax and regulatory environments.[26] One journalist suggested three prime factors for success as a financial city: a pool of money to lend or invest; a decent legal framework; and high-quality human resources.[27]

Frankfurt has been the financial centre of Germany since the second half of the 20th century as it was before the mid-19th century. Berlin held the position during the intervening period, focusing on lending to European countries while London focused on lending to the Americas and Asia.[37][38]
London continues to maintain a leading position as a financial centre in the 21st century, and maintains the largest trade surplus in financial services around the world.[44][45][46] However, like New York, it faces new competitors including fast-rising eastern financial centres such as Hong Kong and Shanghai. London is the largest centre for derivatives markets,[47] foreign exchange markets,[48] money markets,[49] issuance of international debt securities,[50] and international bank lending.[29]:2[42][51] London benefits from its position between the Asia and U.S. time zones,[52] and from its location within the European Union.[53] The Bank of England and the European Banking Authority are based in London.
New York City remains the largest centre for trading in public equity and debt capital markets, driven in part by the size and financial development of the U.S. economy.[58]:31–32[61] The NYSE and NASDAQ are the two largest stock exchanges in the world.[24] New York also leads in hedge fund management; private equity; and the monetary volume of mergers and acquisitions. Several investment banks and investment managers headquartered in New York City are important participants in other financial centres.[58]:34–35 The New York Federal Reserve Bank, the largest within the Federal Reserve System, regulates financial institutions and implements U.S. monetary policy,[62][63] which in turn influences the world's economy.[64][65]

New York Times journalist Daniel Gross wrote:

“ In today’s burgeoning and increasingly integrated global financial markets — a vast, neural spaghetti of wires, Web sites and trading platforms — the N.Y.S.E. is clearly no longer the epicenter. Nor is New York. The largest mutual-fund complexes are in Valley Forge, Pa., Los Angeles and Boston, while trading and money management are spreading globally. Since the end of the cold war, vast pools of capital have been forming overseas, in the Swiss bank accounts of Russian oligarchs, in the Shanghai vaults of Chinese manufacturing magnates and in the coffers of funds controlled by governments in Singapore, Russia, Dubai, Qatar and Saudi Arabia that may amount to some $2.5 trillion. -- Daniel Gross in 2007.[72] ”

An example is the alternative trading platform known as BATS, based in Kansas City, which came "out of nowhere to gain a 9 percent share in the market for trading United States stocks."[72] The firm has computers in the U.S. state of New Jersey, two salespersons in New York City, but the remaining 33 employees work in a center in Kansas.[72] Charlotte is the second-largest banking center in the United States, after New York City. Bank of America, the United States' second-largest bank is headquartered here, as well as a secondary headquarters for Wells Fargo. BB&T, MetLife, TIAA-CREF, and SunTrust Banks all have a major corporate presence in the city.

Offshore financial centres

An offshore financial centre, although not precisely defined, is usually a small, low-tax jurisdiction specialising in providing corporate and commercial services to non-residents in the form of offshore companies and the investment of offshore funds.[8]

The term offshore financial centre is a relatively modern neologism, first coined in the 1980s.[84] Although the terms are not synonymous, many leading offshore finance centres are regarded as "tax havens", and the lack of precise definition often leads to confusion between the concepts. In Tolley's International Initiatives Affecting Financial Havens[85] the glossary of terms defines an "offshore financial centre" in forthright terms as "a politically correct term for what used to be called a tax haven." However, this is qualified by adding "The use of this term makes the important point that a jurisdiction may provide specific facilities for offshore financial centres without being in any general sense a tax haven."

In 2009 the International Financial Centres Forum (IFC Forum) was established by a group of professional service firms and businesses with offices in the leading offshore centres.[86] According to its website, the IFC Forum aims to provide authoritative and balanced information about the role of the small international financial centres in the global economy.

See also

References

  1. ↑ "Worldwide Centres of Commerce Index 2008" (PDF). Mastercard. 2008. Retrieved 5 July 2011.
  2. ↑ Kaleigh Alessandro (August 9, 2012). "Hedge Fund Real Estate Update: Is Midtown Still the NYC Hot Spot?". Eze Castle Integration. Retrieved April 9, 2015.
  3. ↑ Nicole Pohl, Franklin & Marshall College (2004). "Where is Wall Street? Financial Geography after 09/11". The Industrial Geographer. Retrieved April 9, 2015.
  4. 1 2 3 4 5 London and Paris as International Financial Centres in the Twentieth Century. Oxford: OUP Oxford. 2005. ISBN 9780191533471.
  5. ↑ "Financial Centres: What, Where and Why?" (PDF). The University of Western Ontario. Retrieved 24 May 2015.
  6. ↑ "Why Europe needs International Financial Centres" (PDF). International Regulatory Strategy Group, CBI. Retrieved 24 May 2015.
  7. ↑ "The Competitive Position of London as a Global Financial Centre" (PDF). Z/Yen Limited. November 2005. Retrieved 24 May 2015.
  8. 1 2 "Offshore Financial Centers: IMF Background Paper". International Monetary Fund. 23 June 2000. Retrieved 24 May 2015.
  9. 1 2 Cameron, Rondo; Bovykin, V.I., eds. (1991). International Banking: 1870–1914. New York, NY: Oxford University Press. ISBN 978-0-19-506271-7.
  10. ↑ "What Makes A Successful Global Financial Centre?". Gresham College. 14 October 2009. Retrieved 24 May 2015.
  11. ↑ Mercer (3 August 2012). "Cost of living and quality of life in international financial centres". City of London. Retrieved 23 May 2015.
  12. ↑ "New York and London vie for crown of world’s top financial centre". The Financial Times. 1 October 2014. Retrieved 24 May 2015.
  13. ↑ Beth Gardiner (January 20, 2010). "The London Banking Center Is Beginning to Feel Like Itself Again". The New York Times: Global Business. Retrieved 2011-01-15.
  14. ↑ Bourse Consult (18 November 2013). "From local to global: building a modern financial centre". City of London. Retrieved 24 May 2015.
  15. 1 2 Jacobs, [edited by] A.J. (2013). "2: Cities in a World Economy (2006) Saskia Sassen". The world's cities : contrasting regional, national, and global perspectives (1st ed.). New York: Routledge. ISBN 9780415894852. Retrieved 29 May 2015.
  16. 1 2 3 Wójcik, Dariusz (2011). "The dark side of NY-LON: Financial centres and the global financial crisis". School of Geography and Environment, University of Oxford. Retrieved 29 May 2015.
  17. ↑ See, for example, Yoshio Okubo, Vice Chairman, Japan Securities Dealers Association (October 2014). "Comparison of Global Financial Center". Harvard Law School, Program on International Financial Systems, Japan-U.S. Symposium. Retrieved 30 May 2015.
  18. ↑ "London beats New York to top financial hub ranking - RTÉ News". Rte.ie. Retrieved 2015-09-24.
  19. ↑ "GFCI - Global Financial Centres Index". Z/Yen Group. Retrieved 24 September 2015.
  20. ↑ "New York Strips London of Mantle as World’s Top Financial Center". Bloomberg. 17 March 2014. Retrieved 30 May 2015.
  21. ↑ "The Global Financial Centres Index 18" (PDF). Long Finance. September 2015. Retrieved 24 September 2015.
  22. ↑ "Xinhua-Dow Jones International Financial Centers Development Index - 2014" (PDF). Xinhua and Dow Jones. November 2014. Retrieved November 2014.
  23. ↑ "2013 WFE Market Highlights" (PDF). World Federation of Exchanges. Archived from the original (PDF) on March 27, 2014. Retrieved July 20, 2014.
  24. 1 2 3 "Top 10 Stock Exchanges in the world". World Stock Exchanges. 2011. Retrieved 24 May 2015; "UK’s financial services trade surplus biggest in the world, dwarfing its nearest rivals". TheCityUK. 3 July 2014. Retrieved 5 June 2015.
  25. ↑ "History of the Frankfurt Stock Exchange – Patricians, princes and commodity markets: 18th - 19th century". Deutsche Börse. Retrieved 11 July 2015.
  26. ↑ Patrick McGeehan (February 22, 2009). "After Reversal of Fortunes, City Takes a New Look at Wall Street". The New York Times. Retrieved 2011-01-15.
  27. 1 2 3 Daniel Altman (September 30, 2008). "Other financial centers could rise amid crisis". The New York Times: Business. Retrieved 2011-01-15.
  28. ↑ "The financial and business sector in the Amsterdam metropolitan area." (PDF). Amsterdam Business. Retrieved 23 May 2015.
  29. 1 2 3 Roberts, Richard (2008). The City: A Guide to London's Global Financial Centre. Economist.
  30. ↑ Heather Timmons (October 27, 2006). "New York Isn’t the World’s Undisputed Financial Capital". The New York Times. Retrieved 2011-01-15.
  31. ↑ "Dubai as an international financial centre" (PDF). Cass Business School. September 2013. Retrieved 2 June 2015.
  32. ↑ "Ireland's IFSC (International Financial Services Centre)". Finance Dublin. Retrieved 23 May 2015.
  33. ↑ "Key Facts". IFSC Ireland. Retrieved 23 May 2015.
  34. ↑ "Why Frankfurt". Frankfurt Main Finance. Retrieved 25 May 2015.
  35. ↑ "Frankfurt as a Financial Centre". The Financial Times. Retrieved 25 May 2015.
  36. ↑ https://eiopa.europa.eu/Contacts, accessed 17 November 2015.
  37. ↑ Julia Bersch, Ludwig-Maximilians-University Munich and Munich Graduate School of Economics, Graciela L. Kaminsky, (September 2008). "Financial globalization in the 19th century: Germany as a financial center" (PDF). pp. 1, 4.
  38. ↑ Jeske, Carl-Ludwig Holtfrerich.; Metzler, Friedrich von (1999). Frankfurt as a financial centre : from medieval trade fair to European banking centre. München: Beck. ISBN 9783406456718.
  39. ↑ (Xinhua) (2009-06-02). "HK, Shenzhen promote financial industry in NY". China Daily. Retrieved 2011-01-15.
  40. ↑ Cassis, Youssef (2006). Capitals of Capital: A History of International Financial Centres, 1780–2005. Cambridge, UK: Cambridge University Press. ISBN 978-0-511-33522-8.
  41. ↑ Michie, Ranald (2006). The Global Securities Market: A History. OUP Oxford. ISBN 0191608599.
  42. 1 2 Professor Ranald Michie, Durham University (July 2012). "The City of London as a Global Financial Centre: An historical and comparative perspective". Retrieved 23 May 2015.
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  48. ↑ "Triennial Central Bank Survey: Foreign exchange turnover in April 2013" (PDF). Bank for International Settlements. September 2013. p. 14. Retrieved 23 May 2015.
  49. ↑ "International money market instruments - all issuers By residence of issuer" (PDF). Bank for International Settlements. March 2015. Retrieved 23 May 2015.
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  51. ↑ "External loans and deposits of banks" (PDF). Bank for International Settlements. April 2015. Retrieved 23 May 2015.
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  63. ↑ "About the Fed." New York Federal Reserve Web page. Footnote upgraded/confirmed 2010-03-30.
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  72. 1 2 3 4 Daniel Gross (October 14, 2007). "The Capital of Capital No More?". The New York Times: Magazine. Retrieved 2011-01-15.
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  75. 1 2 Martin Fackler (November 16, 2007). "Tokyo Seeking a Top Niche in Global Finance". The New York Times: World Business. Retrieved 2011-01-15.
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  84. ↑ Offshore Financial Centres, Richard Roberts, ISBN 1-85898-155-7
  85. ↑ ISBN 0-406-94264-1, Tim Bennett (2001)
  86. ↑ "International Financial Centres Forum Launched", Cayman Financial Review, 5 January 2010, retrieved 16 March 2011

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