Global Economics

The World's Top Financial Centers


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.

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.

Check out our slide show (BusinessWeek.com, 3/5/08) for a summary of the world's top 10 financial centers.

Scott is a reporter in BusinessWeek's London bureau .

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