|
About Z/Yen
History
Clients
People
Testimonials
Z/EALOUS
FAQ
Services
Strategy
Intelligence
Systems
SpecialiZm
Change management
Outsourcing
Sectors
Financial services
Technology
Not-for-Profit
Commercial
Public sector
Activities
GFCI
The London Accord
Events
On-line surveys
c
Products
Compliance workstation
Benchmarking
Investment games
PPRISM
PropheZy
VizZy
Knowledge
Books
Articles
Research &
Presentations
Press
Now & Z/Yen
Media coverage
Press releases
Z/Yen imagery
Fun
Photo gallery
Caption competition
Humour
ExtZy
Links
Reading list
Risk/Reward surfing
© The Z/Yen Group of Companies 2008
| |
Michael Imeson Reports On The Imperfect Art Of Ascertaining Which World City
Is Truly The Greatest.
New York City is still the world's leading
financial centre, according to a McKinsey report published in January. Oh
no it is not, it has just been overtaken by London, says a Z/Yen report
published in March. Who should we believe? The McKinsey study was
commissioned by New York City mayor Michael Bloomberg and Charles Schumer, a
Democrat senator from the state of New York, so should its objectivity be
suspect? But then, the Z/Yen survey was commissioned by the City of London, so
perhaps the authors were telling their paymasters what they wanted to hear?
The truth is that both cities are at the top of their game. They are so
closely matched that it is difficult to tell which is in the lead, and it is
complicated by the fact that the two surveys use completely different
methodologies.
The London one - the
Global Financial Centres Index (GFCI), published for the first time this
year - looks at the competitiveness of 46 financial centres around the world.
London is first with 765 points, followed closely by New York on 760. Some
way behind are Hong Kong, Singapore and Zurich (see table below). London and New
York are "significantly ahead of the rest of the field to be the only true
global financial centres", write the authors.
Some of the other big centres are niche players, such as Zurich and Geneva for
private banking and asset management, Hamilton (Bermuda) for reinsurance, and
Dubai for Middle East finance and Islamic banking. Other centres are up
and coming and are likely to reach the top 10 or 20 in the near future, such as
Mumbai, Shanghai and Beijing.
Taxes and regulation
Michael Snyder, chairman of the policy and
resources committee at the City of London, says: "London's prime position is a
reflection of the unrivalled talent pool clustered here." He adds that "our firm
but fair principles-based regulation supported by good market access and an
excellent business environment" are also key factors. But he is concerned
that respondents to the GFCI noted that the UK's corporate tax regime has become
less competitive.
Daniel Doctoroff, deputy mayor of New York City, says that all surveys of senior
executives in financial services around the world point to the "availability of
talent" as the single most important factor in determining what influences their
choice of location.
"Talent is our biggest competitive advantage," says Mr Doctoroff. "For the
past 200 years, New York has been a place where people have come to make their
names, make their fortunes and make a difference in financial services, and we
continue to be the leader today.
"It's not a position that we take for granted. We have been very clear
with our federal government that in order to sustain our financial leadership we
have to ensure that the best and brightest minds continue to come to this city."
Mr Doctoroff says the McKinsey report - Sustaining New York's and the US's
Global Financial Services Leadership - identified three major problems that New
York needs to deal with to stay on top. The first is US government visa
restrictions, tightened up after 9/11. They need to be relaxed so the city
can continue to attract talent, he says.
The second is the regulatory regime, which in the wake of the corporate scandals
of the late 1990s and early this decade has become too strict. The
pendulum has swung too far, especially with parts of the Sarbanes-Oxley Act.
"Right now there is an effort in the Bush administration and the SEC [Securities
and Exchange Commission], working with the Treasury and other regulators, to
move that pendulum back," says Mr Doctoroff. The third problem area is the
fear of litigation, which is a particular concern for non-US companies.
He says that Mr Bloomberg and Mr Schumer recently met Federal Reserve chairman
Ben Bernanke, Treasury secretary Henry Paulson and SEC chairman Christopher Cox
to review progress on how these issues are being addressed. "We are
encouraged that we are making meaningful progress," says Mr Doctoroff.
"Some changes will come this year, some in the next couple of years, and some
structural reforms will take much longer."
German designs
In the 1990s, thanks to the single European market and the advent of the euro,
Frankfurt or Paris were tipped to knock London off its perch. They never
did, but they are still centres to be reckoned with. Tanja Michelberger,
financial markets project manager for Frankfurt Economic Development, believes
that her city can justifiably claim to be number three in the world.
"We have a long history of being an open-minded, liberal and cosmopolitan
trading city and financial market place," she says. Specifically, she
cites Frankfurt's current reputation for liquid markets - especially in bonds,
covered bonds (pfandbrief), funds and certificates - and the "outstanding global
position" of Eurex, the world's largest derivatives exchange and the leading
clearing house in Europe.
Other success factors, she says, include German political backing for open
markets and its high-class education and research facilities - Goethe University
and Business School, Frankfurt School of Finance & Management, Centre for
Financial Studies, e-Finance Lab, Institute for Law and Finance, Frankfurt
MathFinance Institute, Institute for Monetary and Financial Stability and the
Institute for Insurance Law.
As well as being an operational base for numerous commercially run financial
institutions, Frankfurt is home to public sector institutions. It is the
headquarters for the Bundesbank (the German central bank), European Central
Bank, KfW Banking Group, the German division of the International Finance
Corporation (part of the World Bank group) and CEIOPS (the Committee of European
Insurance and Occupational Pensions Supervisors).
Frankfurt's biggest weakness, says Ms Michelberger, has probably been its "lack
of an integrated, confident and coordinated marketing" policy, partly due to
Germany's federal system which tends to downplay national strengths.
Another weakness is Germany's inflexible labour laws.
Capital moves
The International Capital Market Association (ICMA), which has more than 400
members in 48 countries, is based in Zurich and has offices in London, so no
prizes for guessing which cities it favours. "If you suddenly have to hire
a thousand traders, London is the only place in Europe you can do that," says
Kevin Milne, ICMA's managing director. "Apart from its deep talent pool,
there are other things that set London apart. More recently it has become
a nicer place to live, and this has coincided with a long bull market."
Zurich and Geneva are niche markets for bond trading and private banking.
"With the advent of the Eurobond market in the 1960s, Switzerland got
established because it had no exchange controls," says Mr Milne. "Private
banking has a long legacy in Switzerland. There is an impelling logic that
if you are wealthy, want to minimise your tax and not display your wealth, you
choose Switzerland for your banking."
Mr Milne rates Bahrain and Dubai as excellent regional centres for the Middle
East and Islamic banking and are growing so rapidly they could be in the top 20
in the next decade. Beijing and Shanghai are also ones to watch. "In
the past six to 12 months, turnover on the Chinese exchanges has been going
crazy, in a good way, and it's showing no signs of abating," he says.
James Nason of the Swiss Bankers Association says there are four cities in
Switzerland that have a long history of conducting substantial banking business
with non-resident private and institutional clients. "Zurich and Geneva
are indeed the largest and best known, but one should not forget Basel and
Lugano," says Mr Nason.
"Of the approximately 330 banks in Switzerland today, 150 are foreign banks.
They are licensed and regulated by the Swiss banking regulator just like Swiss
banks and they have complete access to the market here."
Hard to rise, easy to slide
It is hard to get to the top of any league table, yet all too easy to slip down.
So what should cities in the ascendancy do to avoid being elbowed out of the
way?
"At the national level, they need to make sure the taxation regime is reasonable
so that companies and people are not punished," suggests ICMA's Mr Milne.
"And they should not be too heavy, or too light, on regulation. Once you
have become a major centre with a deep talent pool it is difficult to lose your
place, unless taxation and regulation become a problem, as London and New York,
respectively, are finding."
Nor is success built on rational or tangible factors alone, says Frankfurt's
Tanja Michelberger. "A sound reputation, a long history of credibility and
an open market mind-set are all important, so financial centres are vulnerable
to the phenomena of mass herding and self-fulfilling prophecies if they fall
victim to unfavourable or biased studies or opinions," she says.
Fortunately, although capital is extremely mobile and can leave countries in
milliseconds, people and institutions are less fickle and fleet of foot.
So when a city is hit by negative publicity - as London and New York have, for
perfectly justifiable reasons, on tax and regulation - there is time for the key
actors to take effective counter measures.
THAT 'X' FACTOR
So what are the pre-requisites for success?
The Global Financial Centres Index (GFCI) uses four core indicators:
-
Good availability of a flexible, educated and
skilled financial services workforce.
-
A conducive business environment (for
example, a strong and open economy, competitive tax regime, effective but
not stifling regulation, ease of doing business, and world-class support
services such as legal and accounting services).
-
A large, innovative and easy-to-access
financial services market.
-
First-rate infrastructure (office space,
transport, telecoms, utilities, housing, living standards, social life).
To these a fifth indicator is added, that of
'general competitiveness', which is derived from how well a centre scores on the
four basic factors, thus creating a critical mass which follows the principle
that the whole can be bigger than the sum of the parts.
|
