Visiting Top Financial Centers in The World
>> Tuesday, March 23, 2010
A biannual British survey serves up no surprises. In spite of recent crises, New York and London are still on top of the heap
The keys to becoming a top global financial center are pretty straightforward. Ready access to capital, a solid regulatory regime, and a large pool of professional talent all underpin any city's attempt to break into the world's money elite. That's the finding of the latest Global Financial Centers Index, a biannual survey undertaken by British consultancy Z/Yen Group for the City of London.
Not surprisingly, heavy hitters such as London, New York, and Zurich dominate the top 10. Despite the fallout from the global credit crunch, these financial centers still score high on everything from professional services to standard of living, relegating upstarts from the Middle East and Asia to the second tier of the world's most important economic hubs.
"Once a city has been established, it's hard to break its hold on financial markets," says Geoffrey Wood, professor of economics at City University's Cass Business School in London. "You throw regulatory stability and respect for commercial law into the mix and it's no wonder cities like London remain ahead of the rest."
Truly Global Financial Centers
To figure out where each city ranked, Z/Yen Group surveyed more than 1,200 professionals in the financial-services industry and combined their responses with other metrics such as cities' average salaries and the amount in corporate taxes companies have to fork over. Since the last report, published in September, 2007, the top 10 financial centers have remained roughly unchanged, with Tokyo and Sydney swapping places to finish ninth and 10th, respectively.
Leading the pack are London and New York—the only truly global financial centers in the ranking—whose liquid financial markets, educated workforces, and business-friendly legal environments check all the boxes for what it means to be an economic hub.
The keys to becoming a top global financial center are pretty straightforward. Ready access to capital, a solid regulatory regime, and a large pool of professional talent all underpin any city's attempt to break into the world's money elite. That's the finding of the latest Global Financial Centers Index, a biannual survey undertaken by British consultancy Z/Yen Group for the City of London.
Not surprisingly, heavy hitters such as London, New York, and Zurich dominate the top 10. Despite the fallout from the global credit crunch, these financial centers still score high on everything from professional services to standard of living, relegating upstarts from the Middle East and Asia to the second tier of the world's most important economic hubs.
"Once a city has been established, it's hard to break its hold on financial markets," says Geoffrey Wood, professor of economics at City University's Cass Business School in London. "You throw regulatory stability and respect for commercial law into the mix and it's no wonder cities like London remain ahead of the rest."
Truly Global Financial Centers
To figure out where each city ranked, Z/Yen Group surveyed more than 1,200 professionals in the financial-services industry and combined their responses with other metrics such as cities' average salaries and the amount in corporate taxes companies have to fork over. Since the last report, published in September, 2007, the top 10 financial centers have remained roughly unchanged, with Tokyo and Sydney swapping places to finish ninth and 10th, respectively.
Leading the pack are London and New York—the only truly global financial centers in the ranking—whose liquid financial markets, educated workforces, and business-friendly legal environments check all the boxes for what it means to be an economic hub.
Recent uncertainty related to the British government's response (BusinessWeek.com, 2/17/08) to the collapse of mortgage lender Northern Rock (NRK.L) and proposed tax increases on foreign workers (BusinessWeek.com, 2/12/08) has dented investor confidence in Europe's leading financial center. This year, for the first time, London's banking sector was rated below its New York counterpart, which helped more than halve the city's overall lead.
Political Stability Immensely Important
Not that New York gets away scot-free. The city's central role in the credit crunch, coupled with the added regulatory burden of the Sarbanes-Oxley Act, caused the U.S. financial capital to lose points in the most recent index. In fact, Washington consultancy The Santangelo Group reckons the U.S. has lost more than $30 billion in financial business due to the increase in government regulation.
Further down the ranking, the triple play of capital, regulations, and talent helps explain why some tiny tax havens, such as Jersey, the Cayman Islands, and the Isle of Man, outstrip larger cities like Shanghai, Mumbai, and Johannesburg in the league tables. City University's Wood posits these small places have bested some of the world's largest cities because, "Political stability and legal certainty are immensely important if you're looking to create a world-class financial center," he says.
To be sure, Western Europe and North America face plenty of competition in finance. Asian stalwarts Hong Kong and Singapore ranked third and fourth, respectively, in the latest index, while up-and-coming Chinese powerhouses Shanghai and Beijing posted strong gains in both banking regulation and overall investor confidence.
Old-Timers Won't Give Up Without a Fight
Mark Yeandle, Z/Yen Group's associate director and author of the survey, believes the growing pool of capital associated with emerging markets means these financial centers will only grow in prominence. "We could see Dubai, for example, jumping up into a higher position," he says. "There's no reason why it can't easily reach the top 15 [from its current 24th place]."
In the short term, though, it's hard to see these Asian and Middle Eastern cities catching their more developed counterparts. Already holding decades-long head starts in the banking and professional service industries, cities such as Geneva and Chicago won't give up their titles as leading financial centers without a fight.
Not that New York gets away scot-free. The city's central role in the credit crunch, coupled with the added regulatory burden of the Sarbanes-Oxley Act, caused the U.S. financial capital to lose points in the most recent index. In fact, Washington consultancy The Santangelo Group reckons the U.S. has lost more than $30 billion in financial business due to the increase in government regulation.
Further down the ranking, the triple play of capital, regulations, and talent helps explain why some tiny tax havens, such as Jersey, the Cayman Islands, and the Isle of Man, outstrip larger cities like Shanghai, Mumbai, and Johannesburg in the league tables. City University's Wood posits these small places have bested some of the world's largest cities because, "Political stability and legal certainty are immensely important if you're looking to create a world-class financial center," he says.
To be sure, Western Europe and North America face plenty of competition in finance. Asian stalwarts Hong Kong and Singapore ranked third and fourth, respectively, in the latest index, while up-and-coming Chinese powerhouses Shanghai and Beijing posted strong gains in both banking regulation and overall investor confidence.
Old-Timers Won't Give Up Without a Fight
Mark Yeandle, Z/Yen Group's associate director and author of the survey, believes the growing pool of capital associated with emerging markets means these financial centers will only grow in prominence. "We could see Dubai, for example, jumping up into a higher position," he says. "There's no reason why it can't easily reach the top 15 [from its current 24th place]."
In the short term, though, it's hard to see these Asian and Middle Eastern cities catching their more developed counterparts. Already holding decades-long head starts in the banking and professional service industries, cities such as Geneva and Chicago won't give up their titles as leading financial centers without a fight.
1. London
Plentiful capital, an abundance of qualified professionals, and a stable regulatory environment helped Britain’s capital snag pole position in the global financial centers survey. But there are growing concerns over the British government’s nationalization of beleaguered mortgage lender Northern Rock and a proposed $60,000-per-head tax on foreign nationals who have lived in Britain longer than 7 years. That, combined with the city’s aging infrastructure, could see London lose the top spot as the battle to attract investment becomes tougher.
2. New York
The regulatory impact of the Sarbanes-Oxley Act hasn’t dented the Big Apple’s global competitiveness. Indeed, the U.S.’s financial capital is gaining ground on the top spot, currently occupied by London. For the first time, survey respondents ranked New York’s banking sector more highly than that of the British capital. While issues surrounding the subprime mortgage mess remain a concern, market players seem to have reacted favorably to the U.S. government’s response and still rank New York as the world's No. 2 financial center.
3. Hong Kong
The rise of China as a global financial powerhouse has given Hong Kong—already an economic heavy hitter—even greater importance. The city’s location places it at the heart of Asia’s booming economy, while its historic position as a global financial center has allowed Hong Kong to tap into ever-increasing flows of foreign capital. With these benefits, though, come underlying costs. China’s rapid growth makes the previous British colony highly susceptible to the fluctuations in the developing country’s economy.
4. Singapore
Hong Kong (No. 3) hasn't totally cornered the Asian market. Singapore, the smallest country in Southeast Asia, boasts world-class banking services and globe-beating infrastructure. The city also was one of the only places to gain points in the latest Global Financial Centers Index, predominantly due to a perceived improvement in professional services. By offering the second-lowest corporate tax rate of the cities surveyed, Singapore has wooed foreign companies looking for the biggest bang for their buck.
5. Zurich
Home to some of the world’s leading financial institutions, Zurich has made a name for itself as the No. 1 center for private banking and asset management. Strong regulatory stability and a well-earned reputation for privacy have given this Swiss city an edge over many global competitors. Yet the fallout from the subprime crisis, particularly the multibillion-dollar writedowns at giant UBS, has dented Zurich’s hard-won status.
6. Frankfurt
Frankfurt’s perceived dowdiness has often limited companies from attracting talent to Germany’s financial capital. That reputation, though, is starting to change—epitomized by the traders pictured here dressed up for Carnival—as Frankfurt scored highly on both its ability to retain top professionals and its overall standard of living. These improvements, coupled with the city’s strength in professional services, underpin Frankfurt’s place in the top 10.
7. Geneva
Located on the banks of Lake Geneva, this Swiss city's beauty outshines that of many drab financial centers. Mirroring Zurich’s (No. 5) financial pedigree, Geneva ranks highly for asset management, private banking, and regulatory issues. And it has also come under scrutiny as the credit crunch has taken a whack at Switzerland’s leading financial institutions.
8. Chicago
The U.S.'s second financial hub, after New York, has more going for it than Lake Michigan and the Chicago Cubs. In fact, the Midwestern city remains the world-leading commodities and derivatives hub, and scores high for its business environment and overall competitiveness. The fallout from the subprime crisis, though, could take its toll on growth prospects. But as long as demand for futures contracts and professional services continues, Chicago will stay ahead of rivals.
9. Tokyo
Japan’s capital has gradually recovered from its economic woes of the '90s and now boasts the world’s second-largest stock market by capitalization. Strong capital inflows are combined with top-class amenities, such as the largest number of Michelin-rated restaurants in the world, to make the city a world-beater. Such benefits, though, are offset by poor access to top international talent and long-term regulatory difficulties that could hurt Tokyo’s future competitiveness compared to other Asian cities.
10. Sydney
A high quality of life and advantages in English-language markets mean Sydney remains integral to the plans of the world’s financial elite. Located in the booming Asia-Pacific region, the Australian city has profited from the Asian economic boom to become a leading banking center. Despite its relative isolation, Sydney also can attract top talent through its almost year-round sunshine and unbeatable cultural scene.
