Financial centre

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"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.
New York City's Financial District, Lower Manhattan which includes Wall Street. Many financial firms have expanded northward to Midtown Manhattan.[1][2]

A financial centre is a global city that is home to a large number of internationally significant banks, businesses, stock exchanges and other financial markets. A prominent financial centre can also be described as an international financial centre or a global financial centre.

Background[edit]

The City of London is one of the oldest financial centres and today remains at the heart of London's financial services industry.[3]

Financial centres are locations with an agglomeration of participants in financial markets and venues for these activities to take place.[4] As well as banks and businesses, participants can include institutional investors and 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.[4][5][6]

A paper by the International Monetary Fund offers the following definition:[7]

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 and London, Amsterdam, Paris and New York, have long histories;[8][9] today there are a diverse range of financial centres worldwide.[10] While New York and London often stand out as the leading global financial centres,[11] other established financial centres provide significant competition and several newer financial centres are developing.[12]

Ranking[edit]

Global Financial Centres Index[edit]

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

The Global Financial Centres Index is compiled by the London-based British think-tank Z/Yen and is sponsored annually by the Qatar Financial Centre Authority.[13] As of March 2015, the top ten centres worldwide according to the Global Financial Centres Index are:[14]

Rank Change
Centre
Rating
1 Steady United States New York City 785
2 Steady United Kingdom London 784
3 Steady Hong Kong Hong Kong 758
4 Steady Singapore Singapore 754
5 Increase 1 Japan Tokyo 722
6 Increase 1 Switzerland Zurich 719
7 Increase 1 South Korea Seoul 718
8 Decrease 3 United States San Francisco 708
9 Increase 3 United States Chicago 707
10 Decrease 1 United States Boston 706


International Financial Centres Development Index[edit]

Frankfurt is one of the main financial centres in Europe and home to the European Central Bank.

The International Financial Centres Development Index is compiled 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. According to the 2014 Xinhua-Dow Jones International Financial Centres Development Index, the top ten financial centres in the world are:[15]

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[edit]

The New York Stock Exchange on Wall Street, the world's largest stock exchange per total market capitalisation of its listed companies.[16]
The London Stock Exchange in the City of London, the most international stock exchange and the largest in Europe.[17]
The International Finance Centre in Hong Kong which opened in 2003.
The Tokyo Stock Exchange, the largest stock exchange in Asia.[17]
  • New York City. During much of the second half of the 20th century, the United States and its financial capital, New York City, represented by Wall Street, were described as the leaders.[18] But over the past few decades, with the rise of a multipolar world with new regional powers and global capitalism, numerous financial centres have challenged the predominance of Wall Street, particularly from London and also Asia, which some analysts believe will be the focus of new worldwide growth. One source described New York as extending its lead as the world's centre of finance in November 2014; according to Kinetic Partners, "New York has proven that it can draw and maintain institutions that believe it is the best place to grow their businesses".[19] One journalist suggested three prime factors for success as a financial city:
  1. a pool of money to lend or invest;
  2. a decent legal framework;
  3. high-quality human resources.[20]
New York City is the largest centre for trading in equity and debt capital markets. The NYSE and Nasdaq are the two largest stock exchanges in the world.[17] Debt markets in the US are deeper than in any other market.[21] The scale of the U.S. economy is reflected in the amount of assets managed and traded in New York City, and the associated advisory activity. Several investment banks and investment mangers headquartered in New York City are important participants in other financial centres.[18][22]
  • Tokyo. One report suggests that Japanese authorities are working on plans to transform Tokyo but have met with mixed success, noting that "initial drafts suggest that Japan's economic specialists are having trouble figuring out the secret of the Western financial centers' success."[45] Efforts include more English-speaking restaurants and services and the building of many new office buildings in Tokyo, but more powerful stimuli such as lower taxes have been neglected and a relative aversion to finance remains prevalent in Japan.[45]
  • Luxembourg. The Luxembourg financial centre is the largest investment fund centre in Europe, and second in the world after the United States. It is the leading private banking centre in the Eurozone and the largest captive reinsurance centre in Europe. 143 banks from 28 different countries are established in Luxembourg.[46] The country is also the third largest renminbi centre in the world by numbers, in certain activities such as deposits, loans, bond listing and investment funds.[47] Three of the largest Chinese banks have their European hub in Luxembourg (ICBC, Bank of China, China Construction Bank).
  • Zurich. Zurich is a significant centre for banking, asset management including provision of alternative investment products, and insurance.[48][49][50] Since Switzerland is not a member of the European Union, Zurich is not directly subject to EU regulation.
  • Frankfurt. Frankfurt attracts many foreign banks which maintain offices in the city. It is the seat of Deutsche Börse, one of the leading stock exchanges and derivatives markets operators in the world, and the European Central Bank, which sets the monetary policy for the single European currency, the euro; in addition, in 2014 the European Central Bank took over responsibility for banking supervision for the 18 countries which form the Eurozone. It is also the seat of Deutsche Bundesbank, the German central bank (which was responsible for the monetary policy of the Deutsche Mark before the introduction of the euro).
  • Shanghai. Official efforts have been directed to making Pudong a financial leader by 2010.[53] Efforts during the 1990s were mixed, but in the early 21st century, Shanghai gained ground. Factors such as a "protective banking sector" and a "highly restricted capital market" have held the city back, according to one analysis in 2009 in China Daily.[54] Shanghai has done well in terms of market capitalisation but it needs to "attract an army of money managers, lawyers, accountants, actuaries, brokers and other professionals, Chinese and foreign" to enable it to compete with New York and London.[55] China is generating tremendous new capital, which makes it easier to stage initial public offerings of state-owned companies in places like Shanghai.[43]
  • Toronto. The city is a leading market for Canada's largest financial institutions and large insurance companies. It has also become one of the fastest growing financial centres following the late-2000s recession, helped by the stability of the Canadian banking system. Most of the financial industry is concentrated along Bay Street, where the Toronto Stock Exchange is also located.
  • Singapore. This city was mentioned as a competitor given its proximity to Asian markets, but not due to the fact that it was a major market itself.[56]
  • Dublin. Dublin is a diverse financial services centre, home to banking, insurance and trading services as well as bespoke activities such as aircraft leasing. Dublin has a global reputation as an asset management centre, particularly for alternative investment funds.[57][58]
  • Amsterdam. Amsterdam is well known for the size of its pension fund market. It is also a centre for banking and trading activities.[59]
  • Madrid. Madrid is the location of the largest of the stock exchange in Spain, the Bolsa de Madrid. As a financial centre, it has also good links with Latin America.[60]
  • Others. Mumbai is an emerging financial centre which currently provides services to support other financial centres.[61][62][63] Cities such as São Paulo and Johannesburg and other "would-be hubs" lack liquidity and the "skills base," according to one source.[20] Financial industries in countries and regions such as the Indian subcontinent and Malaysia require not only well-trained people but the "whole institutional infrastructure of laws, regulations, contracts, trust and disclosure" which takes time to happen.[20]

New York Times journalist Daniel Gross wrote:

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."[43] 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.[43]

Offshore financial centres[edit]

A Bermudian banknote. Bermuda is a well known offshore financial centre.

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.

The term offshore financial centre is a relatively modern neologism, first coined in the 1980s.[64] 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[65] 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.[66] 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[edit]

References[edit]

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External links[edit]