March 2009 en the Global Financial Centres Index 5

8/14/2019 March 2009 en the Global Financial Centres Index 5

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THE GLOBALFINANCIAL

CENTRES INDEX

Marc h 2009en

5


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The Globa l Financial Centres Index is published by the City of

Lond on. The authors of the rep ort a re Ma rk Yea ndle, Jeremy

Horne, Nic k Danev, and Alexander Knapp of the Z/ Yen

Group . This rep ort is intend ed as a basis fo r disc ussion o nly.

Whilst e very effort has be en m ad e to ensure the ac c urac y

and c om plete ness of the ma terial in this repo rt, the a uthors,

the Z/ Yen Group and the City of Lond on, give no w arranty in

that rega rd and ac c ep t no liab ility for any loss or da ma ge

inc urred through the use o f, or relianc e up on, this rep ort or

the information c onta ined herein.

The G loba l Financ ial Centres Ind ex (GFCI) is upda ted eve ry

six mo nths in March and Sep temb er. This report is the fifth

ed ition , with ana lysis and deta iled d isc ussion of c entresco mp etitive d ynamics. The ne xt p eriod ic upd ate will be

pub lished in Sep temb er 2009.

Please participate in the GFCI by rating the financial centres

you are familiar with at: www.cityoflondon.gov.uk/ GFCI

Ma rc h 2009

City of London

PO Box 270, Guildha ll

London

EC2P 2EJ

www.cityoflondon.gov.uk/ economicresearch
http://www.cityoflondon.gov.uk/GFCIhttp://www.cityoflondon.gov.uk/economicresearchhttp://www.cityoflondon.gov.uk/economicresearchhttp://www.cityoflondon.gov.uk/GFCI


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1

The Glob a l Financ ia l Centres Index

The Globa l

FinancialCentres Ind exMa rc h 2009

Contents

Foreword 2

1. Exec utive Summary 6

2. Bac kg round 9

3. The Globa l Financ ia l Centres Index (GFCI) 11

4. Ind ustry Sec tors a nd Area s of Comp etitiveness 21

5. Assessments in More Deta il 24

6. Instrumenta l Fac tors 31

7. Forec asting 34

8. Conc lusions 38

Append ix A Methodology 40

Append ix B The Online Questionna ire 44Append ix C The Instrumenta l Fac tors 46


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2

Foreword

The Glob a l Fina nc ial Centres Ind ex

Stua rt Fraser

Cha irman, Polic y a nd Resources Comm ittee, City of Lond on

This late st Glob a l Financ ial Centres Ind ex

is the fifth, co ntinuing the tw ice -yearly

series p roduc ed b y the Z/ Yen G roup Ltd

for the C ity of Lon d on . This inde x

mo nitors the p erspe c tives of m a rket

prac titioners and reg ulato rs loca ted

ac ross the w orld o n the p osition o f their

own a nd ot her international financ ialc entres. The rep ort uses a c om bina tion

of q uestionna ire resp onses and

underpinning d ata to m onitor and

ana lyse the wa y that pe rc ep tions of

financ ial centres are shap ed ,

sp ec ific ally help ing to illuminate t he

extent to w hic h the recent p eriod of

striking globa l ec onom ic turbulenc e ha s

imp ac ted on the fundam ental long-

term fac tors driving the performa nc e of

financial centres.

Given the rap id slowd own in the glob al

ec ono my, it is unsurprising t ha t th e

findings of t he c urrent survey d iffer

dram atic ally from those o f eve n six

mo nths ag o. The six-mont h p eriod

surveyed up to the e nd of Dec emb er,

has bee n unpreced ented. It has

include d m a ssive inte rvent ion by

go vernments, designed to mitiga te the

po tentially d isastrous conta gion e ffec ts

on the rest of their ec onom ies asfinanc ial institutions try to d ea l with

asset d eva luation, the nee d fo r

rec ap italisation and d eleveraging of

lending . Event s in the p eriod surveyed

inc luded the c ollap se of Lehma n and

the e ffect ive na tionalisation b y the US

government of the mortga ge b od ies

Fannie Ma e and Fred die Ma c .

The GFCI results reflec t the severe loss of

c onfide nc e a c ross all ce ntres. There ha s

bee n a significa nt fa ll in sc ores for all 62

c entres rated here, reflec ting a m ore

negative perception of the performanc e

of financ ial servic es ge nerally and the

effec t of the severe d ownturn in some

financ ial sec to rs, in pa rtic ular ininvestment ba nks and hed ge funds.

There is also a muc h higher de gree of

unce rtainty abo ut the future a mo ngst

financ ial service s profe ssiona ls,

dem onstrated by a greater degree o f

vo latility in the ir questionna ire resp onses

reg arding c urrent a nd future

c om pet itiveness and suc c ess this is a

glob al c risis with a w idesprea d ne ga tive

effec t on predicta bility.

There a re som e no ta ble p at terns,

howe ver, that eme rge am id this

unc ertainty. In ge neral, the to p-ranked

c entres have shown a muc h greater

de gree o f resilienc e a nd a sma ller drop

in sc ores tha n tho se low er do wn th e

ran kings, reflec ting pe rhap s a g rea ter

c onfide nce in the ab ility of

longesta blished c entres to w ea ther the

g lob a l ec onom ic c risis. The top six

c entres rema in uncha nged in the

rankings from G FCI 4, with London andNew York still lea d ing the field in 1st a nd

2nd p lac e resp ec tively. They rema in the

only two truly glob a l ce ntres. The g ap

betwe en 2nd plac e and 3rd p lac ed

Singap ore ha s wide ned . Conve rsely,

ce ntres at the bottom of the tab le a re

showing fa lls in sc ores four times grea te r

than those a t the top.


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3


It is impo rta nt to rec og nise tha t the

c urrent e c ono mic c risis is of c onc ern to

all ce ntres, of c ourse, a nd it must b e a

priority for financ ial ce ntres to wo rk

tog ethe r in partnership to a d dress

shortc om ings an d stimulate rec ove ry in

the globa l ec onom y. A partic ular

responsibility fa lls to long estab lishedc en tres, suc h as New York and London ,

to w ork with o ther c entres to he lp restore

a sta ble g loba l financ ial servic es

architecture.

No ec ono my in the wo rld has be en left

unaffec ted by the c urrent seve re

dow nturn. A glob a l crisis requ ires a g loba l

response. Experienc e show s tha t a retreat

into protec tionism wo uld ma ke the

situat ion wo rse a nd p rolong a recession.

The financ ial and relate d professional

and business servic es ind ustry ha s an

impo rtant role to play in stimulat ing

ec onomic rec overy and g rowth.

Stua rt Fraser

City of Lond on

Ma rc h 2009


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4346 23

49

48

38

39 30

58

59

60

1

193224

403755 61

62

3118

1012

13

4757

33

1429

42

8

56

ixvi

44

ii

iv

20


Chart 1

The GFCI World

Rising 1

Static 3

Falling 5

Financial Centre

GFCI 5

Rank

Change in Rank

since GFCI 4

GFCI 5

Rating

Change in Rating

since GFCI 4

4

London 1 3 0 781 5 -10

New York 2 3 0 768 5 -6

Singapore 3 3 0 687 5 -14

Hong Kong 4 3 0 684 5 -16

Zuric h 5 3 0 659 5 -17

Geneva 6 3 0 638 5 -7

Chic ago 71

1 6385

-3Frankfurt 8 1 1 633 5 -3

Boston 9 1 2 618 5 -7

Dub lin 10 1 3 618 5 -4

Toronto 11 1 1 615 5 -9

Guernsey 12 1 4 615 5 -7

Jersey 13 1 1 613 5 -9

Luxembourg 14 1 1 612 5 -10

Tokyo 15 5 -8 611 5 -31

Sydney 16 5 -6 610 5 -20

San Franc isc o 17 3 0 609 5 -11

Isle of Man 18 1 1 601 5 -10

Pa ris 19 1 1 600 5 -7

Ed inburgh 20 5 -2 600 5 -14

Wa shing ton D.C. 21 1 1 596 5 -4

Cayman Islands 22 5 -1 591 5 -11

Duba i 23 3 0 580 5 -17

Amsterdam 24 3 0 575 5 -15

Vanc ouver 25 1 5 569 5 -11

Montrea l 26 1 5 568 5 -11

Hamilton 27 5 -1 564 5 -22

Melbourne 28 5 -1 562 5 -24

Munic h 29 1 3 558 5 -20

Stoc kholm 30 1 3 556 5 -13

Glasgow 31 5 -3 554 5 -32

Brussels 32 1 4 552 5 -7Gib ra lta r 33 5 -8 549 5 -40

British Virgin Islands 34 5 -5 549 5 -35

Shangha i 35 5 -1 538 5 -30

Bahamas 36 5 -1 537 5 -26

Monac o 37 3 0 533 5 -19

Copenhagen 38 3 0 532 5 -16

Oslo 39 1 2 523 5 -11

Milan 40 5 -1 521 5 -20

Ta ipei 41 New 518 New

Vienna 42 3 0 513 5 -17

Bahra in 43 3 0 513 5 -16

Helsinki 44 5 -4 512 5 -22

Kua la Lumpur 45 New 510 New

Qata r 46 5 -1 507 5 -18

Madrid 47 5 -1 506 5 -19

Johannesburg 48 5 -4 503 5 -22

Mumba i 49 3 0 485 5 -12

Bangkok 50 New 480 New

Beijing 51 5 -4 478 5 -31

Osaka 52 5 -2 469 5 -24

Seoul 53 5 -5 462 5 -40

Sao Paulo 54 5 -2 440 5 -31

Rome 55 5 -2 439 5 -28

Welling ton 56 5 -5 432 5 -41

Lisbon 57 5 -2 409 5 -21Prague 58 5 -4 396 5 -48

Warsaw 59 5 -3 381 5 -43

Mosc ow 60 5 -3 363 5 -51

Athens 61 5 -3 335 5 -44

Budapest 62 5 -3 306 5 -68


7/56

iii

v

25

17

711

269

221

27

36

34

54

22

5


Shenzhen i 25 628 188

Malta ii 41 588 166

Buenos Aires iii 51 541 227

Mauritius iv 39 521 187

Rio de Jan eiro v 47 515 220

Ta llinn vi 74 509 271

Jakarta vii 80 498 219

Manila viii 74 447 198

St. Pete rsburg ix 87 434 220

Number of

Assessments

Average

Assessment

Standard Deviation

of AssessmentsFinancial Centre

i

vii

viii

v35

51

52

5315

3

28

16

41

56

4

Chart 1b

Centres with insufficien t num ber of a ssessme nts to be ranked in GFCI


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The G lob al Financ ial Centres Index (GFCI)

wa s first p rod uc ed by the Z/ Yen Group for

the City of Lond on in Ma rch 2007. The

GFCI provid es rating s for 62 financ ial

ce ntres ca lculated b y a fac tor

assessme nt mod el . This p roc ess c om b ines

instrumenta l fac tors (external indic es) w ith

financ ial centre assessme nts (fromresponses to an online q uestionnaire). The

GFCI mo del thus offers an insight into

c hang ing perc ep tions of financ ial

c entres c om pe titiveness over time a nd

how the se relate to the und erlying d ata .

The me thod olog y reflec ts c ha nge s in

pe riod s of relative sta bility and grow th, as

we ll as in the c urrent c ond itions of c risis

and c ontrac tion.

The use of instrumenta l fac tors provides

an insight to the funda menta l

underpinnings of c om petitiveness of the

c entres, relat ing to d ata a c ross five key

aspec ts: Peop le; Business Environment ;

Ma rket Ac c ess; Infrastructure; Ge neral

Co mp et itiveness. Fifty-seven instrume nta l

fac tors a re used in GFCI 5 to m ea sure

these (see Ap pe nd ix C). A continuously

running on line q uestionna ire p rovides

financ ial centre assessme nts from

financ ial services professiona ls, giving a

ba rom eter of p ercep tions within thefinanc ial services industry. GFCI 5

inco rporate s 308 new respo ndents since

GFCI 4, giving a n overa ll to ta l of 26,629

c entre a ssessme nts, weighte d tow ards

the mo st rec ent.

GFCI 5 shows tha t the re is no sa fe port in

the c urrent financ ial storm. Ra tings of a ll

financial ce ntres have d ropp ed (by an

averag e o f ove r 20 po ints), reflec ting

overall neg ativity ab out the c urrent a nd

future state of the sec to r. This is a

signific an t c hange from G FCI 4, where

only ten c entres dropp ed in the ratings.

Overa ll, centres tow ards the lower end o f

the rankings have see n the ir ra tings drop

mo re than the to p -ranking c entres. The

top ten c entres in GFCI 5 have fa llen b y

an a verage of und er 9 po ints in the

ratings, com pa red with an ave rag e fall of

over 40 points for the b otto m ten c entres.

It wo uld a pp ea r that the re is a g enuine

flight to safety with peo ple in financ ialservices putting their faith in the q ua lity of

we ll esta blished financ ial ce ntres.

Ano ther of the ma in theme s of GFCI 5 is

unc ertainty there is a high d eg ree of

volat ility in the ra tings, reflec ting

unce rtainty am ong financ ial servic es

professiona ls. There is unc erta inty about

ma rkets, assets and , of pa rtic ular interest

here, ab out w hic h financial c entres will

prospe r in the future. In th is c lima te,

responses to the G FCI que stionnaire

indicate a m ood of greater loyalty

tow ards one s hom e c entre. There is a

slight ly stronge r element o f ho me b ias

respond ents rating their hom e c entre

highe r than o thers rate that c entre (suc h

bia s is ac c ounted for in the G FCI mod el).

Of the 62 ce ntres in GFCI 5, 18 have risen

in the rankings, 28 ha ve fallen, 13 rem a in

unchang ed a nd there are three new

entrants.

Lond on a nd New York rema in the only

truly globa l financ ial c entres, a lthough

bo th c entres rating s have fa llen, by 10

and 6 po ints respec tively, since GFCI 4

(pub lished in Sep temb er 2008). Whilst

London is just a hea d of New York in the

GFCI, it should be note d tha t New York

ha s a slight ly higher averag e a ssessme nt

(807) than Lond on (801) overall, a lthough

averag e a ssessme nts for Lond on and

New York, during the past six mo nths, are

virtua lly ide ntic a l; New York (799) is one

po int ahe ad of Lond on (798).

6

1. Exec utive Summa ry



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7


Table 1

the Top Ten GFCI 5 Ce ntres (GFCI 4 Ranks and Rating s in Brac kets)

London 1(1) 781 (791) London remains in the top p lace , c lose ly fo llowed by New York, separa ted by 13 po in ts,

do wn from 17 po ints in GFCI 4. In spite o f the c urrent e cono mic c lima te, Lond on is ag ain

in the to p qua rtile of nea rly a ll instrumenta l fac tors as well as the ove rall GFCI. Lond on

still lead s New York in all area s of c om pe titivene ss, and in four of the five industry sec tor

sub-indic es, although respo nde nts expressed c ontinuing c onc erns ab out the likelihoo d

of increased regulato ry b urden, a nd a less predicta ble ta x-regime.

New York 2(2) 768(774) New York remains in second p lace , and dropped on ly 6 po in ts since GFCI 4 in sp ite of a

host of financ ial turmoil: gove rnment supp ort of Fannie Ma e a nd Fred die Ma c ,ba nkruptc y filings for Lehm an Brothers, the sale of M errill Lync h to Bank o f Am eric a and

the US Fed eral Reserve b ailout of A IG. New York move d m arginally ahe ad of Lond on in

the Banking sec tor sub-index.

Singapore 3(3) 687(701) Singapore has dropped 14 po in ts, bu t re ta ins the number 3 ranking over Hong Kong

that it ga ined in GFCI 4. It is now 81 points be hind New York. It rema ins a solid c entre, as

evide nc ed in its continuing high performa nc e in all industry sec tor sub-indic es and in all

area s of c om pe titiveness, taking 3rd o r 4th plac e ac ross the b oa rd.

Hong Kong 4(4) 684(700) Hong Kong remains a strong financia l centre and is in 3rd or 4th p lace in a ll industry

sec tor sub-indic es, except Insuranc e, and in a ll area s of c om pe titivene ss. With only a

few excep tions, most Asian ba nks c ontinue to be ab le to financ e loa ns with de po sits,

insulating Hong Kong from som e o f the d irec t impa c t of the c urrent financ ial crisis.

Zu rich 5(5) 659(676) Zurich he ld steady a t 5th p lace in GFCI 5 due bo th t o it s deep -rooted m arke t niche in

the p rivate ba nking and a sset ma nag em ent sec tors, and the e arly moves by Swiss

ba nks to c ut ba ck on expo sure prior to, and e arly in, the c urrent financ ial crisis.

Geneva 6(6) 638*(645) Geneva has rema ined a t 6th p lace as investors m ove to find f irm g round am idst the

tum ult. This has help ed the c ity s score in the Business Environm ent sub-index move up 5

points.

Chicago 7(8) 638* (641) Slipp ing only th ree po in ts from GFCI 4, Ch icago remained re la t ively stab le in a marke t

that saw m ost othe r centres suffer far mo re. Chicag o rema ined in 6th in the Ge neral

Com pe titivene ss sub-inde x.

Frankfurt 8(9) 633(636) Frankfurt is in 8th p lace, up one rank f rom GFCI 4. The f inancia l system in Germany has

be en more stab le tha n in Lond on or New York ove r the p ast six months. Frankfurt a lso

did very we ll in ce rtain industry sub-sec tors, rising five p lac es to 7th a mong G ove rnment& Regulato ry respo nde nts, and three p lac es to 9th am ong Professional Services

respondents.

Boston 9(11) 618*(625) Boston has historica lly move d in and out of the GFCI top 10, and is ranked 9th in GFCI 5.

It show ed a strong increase in ave rage assessments among respo nde nts, rising from 628

in GFCI 4 to 699 now. It was hit by a falling pe rformanc e in som e o f the instrumenta l

fac tors, how eve r.

Dub lin 10(13) 618* (622) Dub lin has benefited from the Irish government s investment over the past decade

whic h has ma de Ireland a c ost efficient loc at ion for banking op erations. Dublin is also

an a ttrac tive destination for investment a nd c orporate ta x residence . Dublin has

c limb ed three plac es in the rankings de spite rec ent worries ab out the Irish ec ono my as

a w hole.

* Ratings are rounded to the nea rest whole numb er for clarity but are ca lculated to several dec imal place s


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The d ifference in ratings be twee n the top

two c entres and third plac e has

increased since GFCI 4 the ga p

be twee n New York and 3rd p lace d

Singa pore is now 81 po ints, co mp ared

with 73 points p reviously. Singa pore s

ra ting ha s fallen by 14 po ints, and Hong

Kong (4th in the rankings) has fallen b y16 po ints.

Whilst the top six c entres have rem a ined

in the same position in GFCI 5, Tokyo ha s

dropp ed 8 plac es to 15th and Sydney ha s

fa llen six p lac es to 16th. Som e strong

sec ond ary or regiona l c entres fea ture in

the top ten Chica go and Frankfurt have

risen o ne rank ap iece to 7th a nd 8th

plac e respec tively, and Boston (9th) and

Dublin (10th) have entered the top ten.

A summa ry of the top t en financ ial

c entres in GFCI 5 is g iven in Table 1 o n

pag e 7.

GFCI respond ents believe tha t the ma in

threats to London a nd New York are

currently:

I Pote ntial reg ulato ry knee-jerk rea c tions

to the c redit crunch, which ma y have

unintended consequences;

I Rec ession New York and Londonanticipa te signific ant ec onom ic losses

from the c red it c runch, due to their

heavy depe ndenc e on revenues

de rived from financ ial sec tor

pe rforma nce , but will also b e hurt by

na tiona l rec essions.

The m od el used to c reate GFCI is a lso

used to c reate sub-ind ices for industry

sec tors and a rea s of c om pe titivene ss (see

Cha p ter 4). Lond on, New York, Singa pore

and Hong Kong all rem ained in the top

four plac es of t hese sub-ind ice s (with the

single exce pt ion of Hong Kong in 5th

p lac e in the Insuranc e sib-ind ex).

Other ce ntres displayed a greate r rang e

of move me nts in comp arison to GFCI 4.

This see ms to reflec t the overa ll c onfusion

in the sec tor and unc ertainty ab out

whic h ce ntres will ultima tely prove to b e

mo st suc c essful.

Respond ents to the GFCI 5 questionnaireco rrobo rated da ta showing that the

lead ing spe c ialist c entres (for examp le

Zuric h for private ba nking a nd C hic ag o

for com mo dities trad ing) a nd some off-

shore ce ntres have wea thered the

financ ial turmoil com pa ratively well thus

far. Respo ndents con tinue to ident ify

Dubai a s llikely to b ec om e m ore

signific ant in the next two to th ree yea rs,

with Singa po re a nd Shanghai a lso

mentioned as c entres where new

offic es are mo st likely to be op ened

in the next few yea rs. As in previous

ed itions of GFCI, respond ents a lso

ove rwhe lmingly identified the Business

Environm ent as the single grea test fac tor

of c om pet itiveness. Business environme nt

in this c onte xt inc ludes the reg ulato ry

environment, the rule of law, trust

and taxation.

Please participate in the GFCI by rating

the financial centres you are familiar with

at: www.cityoflondon.gov.uk/GFCI

8

http://www.cityoflondon.gov.uk/GFCIhttp://www.cityoflondon.gov.uk/GFCI


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9


The Glob a l Financ ial Ce ntres Ind ex (GFCI)

wa s prod uc ed by the Z/ Yen Group fo r the

City of Lond on in Ma rc h 2007. It rate d

and ranked ma jor financ ial c entres of the

wo rld in terms of c om pe titiveness. Since

then, the increa se in the numb er of

respo ndents and ad ditional d ata in

suc c essive ed itions has highlighted the

c hang ing priorities and c onc erns of

financ e p rofessiona ls.

A c ont inuously running o nline

que stionnaire provides financ ial c entre

assessments from f inanc ial servic esprofe ssiona ls. GFCI 5 uses 26,629

assessments from 1,455 respond en ts of

who m 308 have respo nde d since GFCI 4.

This rep ort is the 5th in t he series.

GFCI 5 provid es ra tings and rankings for

62 financ ial c entres c alc ulated b y a

fa c tor a ssessme nt m od el (full de tails

c an b e found in Ap pe ndix A). This

p roc ess c om b ines assessme nts of

financ ial ce ntres from respo nses to a n

online questionna ire with instrumenta l

fac to rs (externa l indic es).

2 Bac kground & Introduct ion

Table 2

the G FCI Series Published Total Respondents Total Assessments

GFCI 1 Marc h, 2007 491 3,992

GFCI 2 September, 2007 825 11,685

GFCI 3 Marc h, 2008 1,236 18,878

GFCI 4 Sep tember 2008 1,406 24,014

GFCI 5 March 2009 1,455 26,629

I Financial centre assessments provide

an up to d ate ba rometer of

pe rc ep tions within the financ ial servic es

industry. The assessments are g iven by

respo nses to a c om prehensive ong oing

online q uestionnaire c omp leted by

internationa l financ ial servic es

professiona ls (who assess financ ialc entres with which they a re p ersona lly

familia r). The online questionna ire (see

Ap pend ix B) runs c ont inuously to keep

the GFCI up-to-date with peop le s

c ha ng ing assessme nts. Sinc e G FCI 4,

308 ad ditional respo nde nts have filled

in the o nline que stionnaire, thereb y

providing 5,814 new financ ial ce ntre

assessments from fina nc ial servic es

professiona ls ac ross the w orld.

A to ta l of 26,629 financ ial ce ntre

assessments from 1,455 financ ial

servic es profe ssiona ls a re used to

c om pute GFCI 5.

I Instrumental factors offer an insight to

the fund am enta ls of c om pe titivene ss of

the c entres. They fo rm a set o f ob jective

evide nc e of com pe titivene ss provided

by a wide va riety of com pa rab le

sources. For examp le, evide nc e a bo ut

the infrastructure co mp etitivene ss of a

financ ial ce ntre is draw n from a surveyof property and a n index of occ upanc y

c osts. Evidenc e a bo ut a fair and just

business env ironm ent is d rawn from a

c orruption percep tion inde x and a n

op ac ity ind ex. Fifty-seve n instrumenta l

fac tors are used in the GFCI 5 mod el

(see A ppend ix C fo r deta ils). Of these

57, two new indices are included to

rep lac e tw o less relate d to financ ial

service s. A further 22 ind ice s ha ve be en

upd ate d since G FCI 4. Not a ll financ ial

c ent res are rep resented in a ll the

externa l sourc es, and the statistica l

mod el takes ac c ount of these g ap s.


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One of the streng ths of t he GFCI is the

diversity of respo nde nts and the b rea dt h

of their experienc e a nd perspe ctive on

the financ ial servic es ind ustry. In GFCI 5,

the respo nde nts rep resente d the typ es of

industries, organisa tions, and ge og rap hic

reg ions shown in Tab les 3 to 5.

The instrumenta l fac tors and financ ial

c ent re assessme nts are co mb ined using

sta tistica l techn iques to b uild a pred ictive

mod el of financ ial c entre c omp etitiveness

using supp ort vec tor machine

ma them at ics. The p red ictive model isused to answe r questions suc h a s:

If an investme nt ba nker gives

Singap ore a nd Sydne y c ertain

assessme nts, the n, ba sed on

the instrumenta l fac tors for

Singa po re, Sydney and Paris, how

wou ld t ha t p erson assess Paris?

The G FCI prov ide s sub -indic es derived

from respo nde nts in five spe c ific financ ial

servic es industry sec to rs, na mely: Asset

Mana gem ent, Banking, Gove rnment &

Reg ulato ry, Insuranc e, and Professiona l

Service s. These a re based up on five key

aspe c ts of c om pe titivene ss: Peo ple,

Business Environm ent (inc lud ing

reg ulation and taxa tion), Ma rket Ac c ess,

Infrastruc ture, a nd Gene ral

Co mp et itiveness. These sub -indic es a re

d isc ussed in Cha p ter 4.

10


Table 3

Respond ents by

Industry Sec to r

Table 4

Respond ents bySize of

Organisation

Sector Number of Responses

Banking 309 21%

Asset Management 259 18%

Insuranc e 118 8%

Professiona l Servic es 279 19%

Regula tory & Government 95 7%

Other 395 27%

TOTAL 1,455 100%

Table 5

Respond ents by

Location

Location Number of Responses

Europe* 707 49%

North Americ a ** 144 10%

Asia 126 9%

Off-shore 370 25%

Multip le or Other 108 7%

TOTAL 1,455 100%

*Of these 707 respond ent s, 454 werefrom Lond on

**Of t hese 144 responde nts, 69 were

from Ne w York

Number of Employees Number ofWorldwide Responses

Fewer than 100 432 30%

100 to 500 237 16%

500 to 1,000 106 7%

1,000 to 2,000 56 4%

2,000 to 5,000 90 6%

More than 5,000 420 29%

Unspec ified 114 8%

TOTAL 1,455 100%


13/56


One of the m ain theme s of c urrent

financ ial c ond itions, reflec ted strong ly in

GFCI 5, is unc erta inty. As Olivier

Blanc ha rd, Chief Ec ono mist of the IMF

rec ently said:

From the Vix inde x of stoc kma rket

vola tility, to the d ispersion of

growth foreca sts, even to the

freq uency of the w ord unc ertain

in the p ress, all the ind ica to rs

of unc ertainty are at or nea r all-

time highs.

GFCI 5 shows signific ant vola tility in the

rat ings reflec ting unc ertainty amo ng

financ ial servic es professiona ls. There is

unc ertainty ab out ma rkets, assets and, o f

pa rticular interest here, ab out w hich

financ ial ce ntres will p rosper in the future.

This unc erta inly is exhibited in a fligh t t o

sa fety in the GFCI rankings. Financ ial

c ent res further dow n the G FCI ranking s

suffered grea te r vola tility to the

assessme nts they rec eived tha n cent res

tow ards the to p of the rankings. Althoug h

a ll c entres lost po ints in the G FCI ra ting s,

those a t the top of the GFCI lost

sub sta ntially less ground tha n the c ent res

at the bo ttom . The to p te n c entres in

GFCI 5 fell by a n ave rag e o f unde r 9

po ints in the rat ings c om pa red with an

ave rag e fa ll of o ver 40 po ints for the

botto m ten ce ntres.

There are 62 c en tres rated in GFCI 5.

Seve nty-one c entres were include d in the

online q uestionnaire, b ut nine w ere not

ranked in the GFCI as they d id not

receive the minimum 100 assessme nts

nee ded for inclusion. The rankings of the

62 ce ntres in GFCI 5, show tha t 18 cent res

ha ve risen, 28 have fa llen, 13 rem a in

uncha nged and there are three new

entrants.

11

3. The GFCI


14/56

12


Table 6

GFCI 5 Ranking s

and Ratings

Financial Centre Rank Change in Rank Rating Change in rating

London 1 - 781 -10New York 2 - 768 -6

Singapore 3 - 687 -14

Hong Kong 4 - 684 -16

Zuric h 5 - 659 -17

Geneva 6 - 638 -7

Chic ago 7 1 638 -3

Frankfurt 8 1 633 -3

Boston 9 2 618 -7

Dub lin 10 3 618 -4

Toronto 11 1 615 -9

Guernsey 12 4 615 -7

Jersey 13 1 613 -9

Luxembourg 14 1 612 -10

Tokyo 15 -8 611 -31

Sydney 16 -6 610 -20

San Franc isc o 17 - 609 -11

Isle of Man 18 1 601 -10

Pa ris 19 1 600 -7

Ed inburgh 20 -2 600 -14

Washington D.C. 21 1 596 -4

Cayman Islands 22 -1 591 -11

Duba i 23 - 580 -17

Amsterdam 24 - 575 -15

Vanc ouver 25 5 569 -11

Montrea l 26 5 568 -11

Hamilton 27 -1 564 -22

Melbourne 28 -1 562 -24

Munic h 29 3 558 -20

Stoc kholm 30 3 556 -13

Glasgow 31 -3 554 -32

Brussels 32 4 552 -7

Gibra lta r 33 -8 549 -40

British Virg in Islands 34 -5 549 -35

Shangha i 35 -1 538 -30

Bahamas 36 -1 537 -26

Monac o 37 - 533 -19

Copenhagen 38 - 532 -16

Oslo 39 2 523 -11

Milan 40 -1 521 -20

Ta ipei 41 New 518 New

Vienna 42 - 513 -17

Bahra in 43 - 513 -16

Helsinki 44 -4 512 -22

Kua la Lumpur 45 New 510 New

Qatar 46 -1 507 -18

Madrid 47 -1 506 -19

Johannesburg 48 -4 503 -22

Mumbai 49 - 485 -12

Bangkok 50 New 480 New

Beijing 51 -4 478 -31

Osaka 52 -2 469 -24

Seoul 53 -5 462 -40

Sao Paulo 54 -2 440 -31

Rome 55 -2 439 -28

Welling ton 56 -5 432 -41

Lisbon 57 -2 409 -21

Prague 58 -4 396 -48

Warsaw 59 -3 381 -43

Mosc ow 60 -3 363 -51

Athens 61 -3 335 -44

Budapest 62 -3 306 -68


15/56


The Glob a l Centres

London and New Yorkrema in in 1st a nd

2nd p lac es respec tively. Both c entres have

arguab ly bee n ep ice ntres of the globa l

financ ial c risis in 2007 and 2008. Londons

lea d ove r New York has drop pe d from 17

points in GFCI 4 to 13 po ints now. The inde x

is on a sca le of 1,000, and this 13 point

d ifferenc e is relat ively sma ll.

The tw o lead ing c entres rema in closely

matc hed a nd are comp lementary to

ea ch othe r as we ll as c ompe titive. New

Yorks averag e a ssessme nt (f rom

respo ndent ratings) is slightly higher thanLondo ns, but the ad dition o f da ta from

instrumental fac tors and the ana lytics of

the p redic tion engine result in its ove rall

rat ing be ing lower in the final inde x.

Financial Centre Assessments

Financ ial cent re assessments are g iven b y

respond ents to the o nline q uestionna ire. It

should b e no ted that overall New York has

a slight ly higher average a ssessme nt (807)

tha n Lond on (801). Table 14, in Chapter 5,

show s tha t a verag e assessme nts for

Lond on and New York, during the past six

mo nths, are virtually ident ica l (New York

(799) is one po int ahead o f Lond on (798).

Shown below in Cha rt 2 are three mo nth

rolling averag e assessme nts given to

Lond on a nd New York betw een July 2007(the sta rt of the c urrent c risis) and the e nd

of Dec em be r 2008, when the a ssessme nts

for GFCI 5 were c ollec ted .

13

Chart 2

Average

Assessme nts for

Lond on and

New York

740

760

780

800

820

840

860

880

Nov 08Sep 08Jul 08May 08Ma r 08Jan 08Nov 07Sep 07Jul 07

New York

New York

London

London

Date >

GFCIAssessment>


16/56


17/56


New York low er than mo st other

respo nde nts, but give an ave rag e

assessme nt very similar to the overa ll

average when the New York hom e

responses are remo ved. New Yorkers assess

Lond on substantially lower than ma ny

other respond ents. This might be d ue to the

high profile c overag e o f financ ial services

in the two c entres whic h is som etime s

po rtrayed in the p ress as a b attle for

suprema cy. It might also reflec t a greate r

loya lty to one s home c entre during

turbulent times. It app ea rs from comments

rec eived from respo nde nts to the G FCIsurvey tha t most observers see the two

ce ntres as bo th co mp etitive a nd yet

co mp lementa ry and that the succ ess of

one c entre is not a failure o f the other. The

two ce ntres have reac hed a c ritic al-ma ss

that d oes muc h to sec ure their c o-

lea de rship in the financ ial sec tor glob ally.

This leadership he lps to insula te them from

anything b ut c ata strophic cha nges in a ny

of the compe titiveness fac tors.

Other Studies on London and New York

A rec ent study c haired by Bob Wigley

(Merrill Lync hs Cha irma n fo r Europe , the

Midd le East, and Africa ) on Lond on:

Winning in a Changing World 1 ba cks up

many GFCI find ings. The resea rch

identified four key e lements underpinning

Londo ns ad vantag e in the global

ma rketp lac e. These elements are d irec tly

c ompa rab le to the GFCIs areas of

competitiveness.

The resea rch p aper also d iscusses severa l

threa ts to Lond on s do minanc e:

I a dete rioration in Lond on s historic

strengths and a ttrac tiveness through

increa sed EU-ba sed reg ulation and a

numb er of cha nges to UK po lic ies

(relating, for example, to corporate tax,

non-domic iled tax sta tus, living c osts,

and skills gaps);

I the intensifying c ompe tition from o ther

financ ial centres in Europe and

elsewhere, som e of which a re

agg ressively targeting sub-sec tors of the

financ ial services industry;

I the financ ial c risis itself threa tens the

c ollap se of key compa nies in the c ity (aswitnessed by the experienc es of

c om panies suc h as Lehm an Brothers and

Northern Roc k);

I the risk of reac tionary new regulation

de crea sing the c itys com pe titiveness.

These threa ts must b e taken seriously.

The cont ributions of a suc c essful financ ial

ce ntre to a c ountrys overall eco nomic

hea lth ca n be very imp ortant. The

Financ ial Services (FS) sec to r ma kes a large

contribution to the UK pub lic financ es.

A recent study (2009) unde rtaken by

Pricew aterhouseCoopers for the City of

London e stima tes the Tota l Tax

Contribution of the sec tor in the Financ ial

Yea r to 31 March 2007 as 67.8bn or 13.9%

of to tal g overnment rece ipts for all taxes.

Corporat ion ta x (CT) is the largest o f the

taxes bo rne by UK com pa nies and the FS

sec tor as a whole p rovided 27.5% of to tal

go vernment CT receipts in the Financ ial

Yea r to 31 Ma rch 2007. The UK financ ialservices sec tors cont ribution ha s grow n

stea dily in rec ent years, making up a lmost

15

Table 7

Wigley Key

Elements

Mapped to

GFCI Area s of

Competitiveness

Cha nge s sinc e

GFCI 3

Wigley Report Key Elements

Supp ortive tax, lega l, and regulato ry c onte xt

Attrac tiveness as a loc ation for

corporate hea dqua rters

Effec tive system s and supp ort servic es

(including tec hnology, media, and

pro fessiona l services)

Deep talent poo l and welcoming c ulture

GFCI Areas of Competitiveness

Business Environm ent (this inc lude s ta xation

and the regulatory environment)

Ge neral Comp etitiveness and

Market Acc ess

Market Access, Infrastructure

People, General Competitiveness

1 http://www.london.gov.uk/

mayor/economy/

london-winning.jsp
http://www.london.gov.uk/mayor/economy/london-winning.jsphttp://www.london.gov.uk/mayor/economy/london-winning.jsphttp://www.london.gov.uk/mayor/economy/london-winning.jsphttp://www.london.gov.uk/mayor/economy/london-winning.jsp


18/56

8% of the UKs gross va lue ad ded . More

tha n just ta x reve nue, suc cessful financ ial

centres are large ec onom ic eng ines in

ge neral for the UK 38.8 bn o f net exports

were ge nerated in 2007 at a time when the

UK had a d eficit on trad e a s a w hole of

46.6bn.2

New York fared p articularly we ll in a rec ent

ana lysis by Pricew aterhouseCo op ers

(PwC) entitled Cities of Op po rtunity 3

ranking 1st out of tw enty g loba l cent res.

Lond on w as plac ed 3rd (behind Paris in

2nd). It should ho we ver, be no ted tha tCities of Opportunity looks a t c ities in a

wide r co ntext tha n just financ ial servic es.

Whilst London ranks in 1st p lac e in wha t

PwC refer to a s Financ ial Clout , New York

ranks 1st in Intellectua l Cap ital a nd

Tec hnolog y IQ a nd Innova tion, a s we ll as

Lifestyle Assets ( the qua lity o f life a nd

we ll-being p ote ntial eac h c ity offers its

reside nts and visitors ).

Anothe r study loo king a t the tw o c entres in

som e deta il is Ma sterCard s Centres of

Comm erce Inde x 4 which c lassifies 75

world c ities acc ording to the ir significa nce

in internat ional co mm erce using seven

dimensions. In this inde x London c om es 1st

just a hea d of New York with Tokyo in 3rd .

Lond on sc ores highest in the financ ial

flow d imension as we ll as in the

knowledg e creation and information

flow dime nsion. Lond on also ranked

2nd in the business c enter d imension.

Lond on d id no t fa re as well in livab ilityor e c ono mic stab ility. New York

be nefits from go od po sitions in the two

d imensions tha t mea sure country-leve l

da ta legal and po litic al fram ewo rk

and e c ono mic stab ility, while also

sc oring highly in know ledg e c rea tion

and informa tion Flow .

The Main Threats to the Two Leaders

revealed by the GFCI

GFCI respondents identified severa l

threats to the two glob al c entres. With the

ever-inc reasing g loba lisa tion of financ e

and business, and in spite of the e qua lly

pe rvasive spread of broad ba nd

c onnec tivity, prac tica l hurdles suc h as

visas and other regu lato ry ba rriers to

building an internationa l workforc e

c ontinue to draw fire from GFCI

respo ndents. A goo d e xamp le of this:

The ea se w ith whic h emp loyers

c an ob tain w ork visas for

prospe c tive foreign e mp loyees is

often o verloo ked. There ap pe ars

to b e a mini-stamp ed e of c ity folk

hea ding o ut East to esc ap e

wo eful co nd itions in Lond on.

Cities suc h a s Singa pore w hichare very ope n to foreign talent w ill

be nefit hugely.

London ba sed pension fund m anag er

Short-term e ase of travel is key to financ ial

cent re growth as we ll. In the

Pricew aterhouseCoo pe rs stud y Cities of

Oppo rtunity , the c entres ranked highe st

for Ease o f Entry inc lude:

One G FCI 5 respond ent p ut it suc c inctly:

Where its a ha ssle to fly in quickly

to have a key fac e-to-fac e

meeting, I do nt wa nt to do

business.

Chica go ba sed senior consultant

Visa a nd travel diffic ulties are problem at ic

and the other issues me ntioned b y Wigley

are rea l. Howeve r, the main threa ts to

Lond on a nd New York current ly are:

I Reg ulato ry knee-jerk rea c tions to the

c redit c risis tha t increa se regu lation may

have unintended co nsequenc es.

16


Table 8

Numb er of c ountries with visa -free

trave l to the c entre

Financial Centre Rank

London 1st

Singapore 2nd

Hong Kong 3rd

Toronto 4th

Seoul 5th

2 The Gua rdia n, From Big

Bang to Whimper:

Welcom e to the New City,

11 January 2009 -

http://www.guardian.co.uk/b

usiness/2009/ jan/ 11/

changing-square-mile

3 Cities of Opp ortunity,

PricewaterhouseCoopers

and Partnership forNew York City, 2008

http:/ /www.pwc.com/

cities/

4 http://www.mastercard.com/

us/company/en/insights/

index.html
http://www.guardian.co.uk/business/2009/jan/11/changing-square-milehttp://www.guardian.co.uk/business/2009/jan/11/changing-square-milehttp://www.guardian.co.uk/business/2009/jan/11/changing-square-milehttp://www.pwc.com/cities/http://www.mastercard.com/us/company/en/insights/index.htmlhttp://www.mastercard.com/us/company/en/insights/index.htmlhttp://www.mastercard.com/us/company/en/insights/index.htmlhttp://www.mastercard.com/us/company/en/insights/index.htmlhttp://www.pwc.com/cities/http://www.guardian.co.uk/business/2009/jan/11/changing-square-mile


19/56

17


Eurod ollar ma rkets grew swiftly in the

1960s whe n US tax rule c hanges mea nt

multinationa ls found it attrac tive to leave

dollars outside the cont rol of US

autho rities. Sarbanes-Oxley req uirements

afte r 2000 inc rea sed the attrac tiveness

of Lond on a s a p rinciples ba sed

reg ulato ry environment a nd inc rea sed

listings on AIM a t the expense of NYSE;

I Rec ession: New York and London

antic ipate significant ec onom ic losses

from the c redit c risis, due to their heavy

de pend ence on revenues de rived from

financ ial sec tor performance, but willa lso b e hurt by na tiona l rec essions.

Lond on is more e xposed to the c red it

c risis tha n New York as interna tiona l

who lesa le financ ial services counts for a

larger sha re of GDP. New York a lso ha s a

large hinterland d om estic USA

ec onomy tha t ge nerates a b ase level of

financ ial services ac tivity.

It is ea sy to foc us on the p otential

weaknesses of a financ ial centre b ut there

is c an b e do ubt tha t Lond on and New York

are bo th very c omp etitive financ ial

c ent res. Lond on in pa rtic ular still has an

exce llent rep utation one representa tive

quotation from a G FCI respo ndent is:

Yes, Lond on ha s its d isadvanta ge s

and frustrations, but the c ity know s

tha t it runs on financ ial services,

and ea rns high m arks for effo rts to

rema in the lead ing c entre. Dubai

and others are investing ma dly, butyou can t buy what Londons

alread y g ot

A Ge neva-ba sed investment b anking

executive

Other Leading Centres

Amo ngst o ther lea ding c entres,

Singa pore remains in 3rd p lac e in GFCI 5,

having overtaken Hong Kong in GFCI 4.

Hong Kong rem ains in 4th p lac e o verall.

Hong Kong also d rop pe d o ne plac e (from

3rd to 4th) in bo th the Asset Ma nag eme nt

sub-ind ex and the Peo p le sub-ind ex of

competitiveness.

Singapore ha s d rop pe d 14 po ints since

GFCI 4, but reta ins 3rd p lac e in the GFCI

rankings. It is now 81 po ints behind New

York in 2nd p lac e. It rem ains a solid c entre,

as evide nc ed in its c ont inuing high

pe rforma nc e in a ll industry sec tor sub -

indice s and in a ll area s of

c om pe titivene ss, sitting in 3rd or 4th p lac e

in these rankings ac ross the bo ard.

Hong Kong is c urrently wrestling w ith a

reg ulato ry c hang e tha t is c ausing

c onflic t a mong loca l firms in the financ ial

services industry.

Under Hong Kong s stoc k-

excha nge rules, listed c om pa nies

need to repo rt results twice a yea r

and have an inordinate ly long time

to d isc lose them three m onths

afte r the end of the p eriod for the

ha lf-yea r rep ort, four months for the

yea r-end . In co ntrast, Ame rica n

financ ial results, whic h a re rep orted

qua rterly, must b e d isc losed within

40 da ys of a qua rter-end and 60

da ys of a year-end .5

The rules in Hong Kong a re being

cha nged although full imp lementa tion o f

this new rule ha s been d elaye d until 1st

Ap ril 2009. The c losing o f this particula r

loopho le ma y ca use c hang es in Hong

Kong s ra ting later in the yea r.

In the Go vernme nt & Reg ulato ry sub-

inde x (which inc lude s issues relating toc hanges like this), Hong Kong rem a ined in

4th plac e b ut d rop pe d by 19 points. It will

be interesting to see if inc reasing

transparenc y like this and b ringing the

reg ulato ry p rac tic e m ore in line with

c om pe ting c entres stand ards will help

Hong Kong rise in the rankings aga in.

GFCI respo ndents have ta ken note ,

commenting:

Its ca using pa in, but tightening

Hong Kong s rep orting

requirem ents is long o verdue and

an ab solute ne c essity for tha t

5 The Eco nomist,

Indefensible,

08 Janua ry 2009 -

http://www.economist.com/

finance/displaystory.cfm?

story_id=12903066
http://www.economist.com/finance/displaystory.cfm?story_id=12903066http://www.economist.com/finance/displaystory.cfm?story_id=12903066http://www.economist.com/finance/displaystory.cfm?story_id=12903066http://www.economist.com/finance/displaystory.cfm?story_id=12903066


20/56

ma rket to keep business

in the c risis.

A senior investmen t a dvisor in Frankfurt

Tokyo has fa llen e ight p lac es to 15th in

GFCI 5 and is now outside the top ten fo r

the first t ime. This fa ll in the rankings wa s

caused by a de c line of 31 points the

largest a mongst the top 25 c entres.

Japans banks are suffering less from toxic-

deb t problems than ma ny of the other

lead ing c ent res in the GFCI. Tokyo s

dec line is ca used by m ore co mp lex

ma cro-econo mic issues. In recent ye ars,Japa ns high export-driven income,

pa rticularly in the electronic, tec hnology,

and auto motive sec tors, has ma de it

vulnerab le to the g lob al ec onomic slow-

do wn, as consumers red uce spe nding.

Instrumenta l fac tors in the GFCI mod el

show tha t c onsumer confidence has

drop ped , and the Nikkei s 225-share

ave rag e ha s rea c hed a 26-yea r low. The

Bank of Jap an ha s cut interest rates from

0.5% to 0.3%, and announc ed a fisc al

stimulus pac kag e of a pproximately 1.4% of

GDP. There is a lso a large rise in corporate

and pe rsona l tax rates.

Respo ndents to the GFCI que stionna ire

complain abo ut restrictions (bo th

lega l and c ultural) on ac cess to

internat iona l sta ff:

C ultural acc eptanc e of

foreigne rs is very imp orta nt to

the ea se o f d oing business in a

c oun try. Tokyo fares poorly

in this rega rd.

New York based investment ba nker

Cha rt 4 shows tha t Tokyo suffe rs from

nega tive p erce ptions am ong Europ ean,UK and off -shore respondents. It is

pe rc eived po sitively in North Americ a, a nd

very strong ly amo ng Asian respond ents.

18


6 The GFCI mo de l co ntrols

for responses ab out o nes

home city to better

represent a truly glob al

perspec tive on the Index.

Acc ordingly, Torontos

increa se in this ca se (a s in

oth er city s assessme nt

values) was also

statistica lly significan t a nd

based upon a globally

diverse set o f

respo nd ents. For m ore

information o n the

proce ss used to c omp ile

assessments and rankings,

please see Ap pend ix A.

Chart 4

Average

Assessme nts by

Respondent

Loc ation

Tokyo

-75 -50 -25 0 25 50 75 100 125

Asia

Europe

London

New York

Offshore

Other

Other North America

Oth er UK


21/56

19


The rec ent glob al financ ial turmoil raises

a question a bout the g loba l

ac ce ptanc e of the Western mod el of

fina nc e. It is ap p arent tha t Asian

go vernm ent s a nd b usinesses ha ve

vested interests in glob al financ ial

rec ove ry (pa rticularly since m uc h of their

GDP is exp ort-driven). These

go vernments have an o pp ortunity to

c om pe te m ore strongly with esta blished

c en tres. GFCI resp ond ent s reinforce d th e

potent ial in the ir positions.

Hong Kong is b est on the rang e ofservic es a vailab le, qua lity o f

servic e, a nd ta x; Singap ore is

a lso improving; Lond on is fa lling

in c om p etitiveness

Syd ney ba sed fina nc ial service s

consultant

Toronto d id w ell in GFCI 5, ea rning the 3rd

highe st increa se in ave rag e a ssessme nts

from questionn a ire responses6 with a

p ositive c ha nge of just ove r 100 po ints

(ou t o f a p ossible 1,000.) While this on ly

translated into a o ne-ra nk ga in in the

GFCI, it is an impo rtant a d va nc e fo r a

regiona l c entre tha t has b ee n investing

in its c ap ac ity and rep utation as a g loba l

c entre for financ e.

Despite a strong inc rea se in a verag e

a ssessme nts, Toront o s rating dec lined by

nine p oints. This wa s d ue to a ma rked

d ec line in ce rta in instrumenta l fac tors.

GFCI 5 uses a new me a sure of c orpo ra teta x ra tes and this show s a significa nt

inc rease fo r Toront o. In add ition , the

ma in me asures of Ma rket Ac c ess

(ca pitalisation of the stoc k exc hang e,

an d leve ls of trad ing) have all fa llen

significantly.

Toronto ha s, howe ver, bee n a n impo rta nt

financ ial centre in North Ame ric a for

ma ny yea rs a nd ha s fared relatively well

in the c urren t financ ial crisis. It c on tinues

to be an engine for the Canad ian

ec ono my. Toronto also p erforms we ll

in the industry and c om pe titivene ss

sub -ind ice s (see C ha p te r 4).

Boston show ed a n increase in its a verag eassessme nt o f 71 points but fell in the

GFCI ra ting d ue to c han ge s in

instrume nta l fac to rs suc h a s PwC s

mea sure of c orporate ta xation that

shows a sha rp inc rease. Ta x inc om e a s a

perc ent age o f GDP ha s a lso risen b y 7%.

Sydney is ano ther centre that has

pe rformed po orly in GFCI 5. It ha s

de c lined six pla c es from 10th to 16th.

Examining the c entre s sc ore am ong

instrume nta l fac to rs, the c ost of living

inde x rose b y almost twice the a verag e

and there w as also a signific ant c hang e

in the level of both share and bo nd

trad ing. This wa s ac c omp anied by a

large fa ll in the c a pita lisa tion of its stoc k

exchange.

Off-shore Centres

It is interesting to note the p erforma nc e

of the Offshore c entres in the c urrent

c lima te, given that c onc erns ab out taxeva sion ha ve highlighte d issues

assoc iate d with their ta x sta tus. GFCI

results sug gest tha t som e off-sho re

Table 9

Top five

Off-shore

Centres

Off-shore Centre GFCI 5 Rank GFCI 5 Rating

(change since GFCI 4) (change since GFCI 4)

Guernsey 12th (+4) 615 (-7)

Jersey 13th (+1) 613 (-9)

Isle of Man 18th (+1) 601 (-10)

Cayman Islands 22nd (-1) 591 (-11)

Hamilton 27th (-1) 564 (-22)


22/56

c entres, led here by Guernsey and

Jersey, may have a co mpe tit ive

ad vantage in the rec ent eco nomic

turmo il. There a re five o ff-sho re c ent res in

the top 30 of GFCI 5.

Whilst the se o ff-shore c en tres ha ve a ll

suffered dec lines in the ir rating s, these

d ec rea ses are ge nerally low er than the

ave rag e d ec line o f all centres in the

GFCI. Jersey show ed a rise o f 40 po ints in

the a verag e a ssessme nts it ac hieved b ut

still fell by nine points in the GFCI rating s.

Fa lls in instrume nta l fa c to rs me asuringc orruption p ercep tions, globa l

c omp etitiveness and ec onom ic

sentiment c ontribute d to this

performance.

The ratings of off-sho re c en tres a lso

reflec t the flight to safe ty. Whilst the top

c entres in Tab le 9 ha ve p erforme d w ell,

off-shore c entres further d ow n the GFCI

rankings ha ve suffe red la rge fa lls.

Gibraltar d rop pe d 40 points in GFCI 5

whilst the British V irg in Island s (-35 po ints)

a nd the Baha ma s ( -26 po ints) a lso

pe rformed po orly.

Other Centres

Centres at the b ottom of GFCI 5 have all

suffered a signific ant d ec line in ratings

since GFCI 4. The bot to m ten c en tres in

GFCI 5 have fallen b y an a verage of ove r

40 p oints in the rat ings (co mp ared with

an a verage fa ll of unde r 9 for the top ten

c en tres). These d ec lines a re, in pa rt dueto c ha nge s in instrumenta l fac tors but

they seem to have be en affected by the

unc erta inly felt b y GFCI resp ond ent s. It

would a pp ea r that there is a g enuine

flight to safety with peo ple in financ ial

servic es put ting the ir faith in the qu ality of

we ll esta blished financ ial ce ntres. Of the

ten c entres whic h suffered t he large st

rating s fa lls in GFCI 5, eight a re in the

b otto m q ua rter of the GFCI ra tings ta ble.

Of the se Bud ap est, Mosc ow , Prague and

Athe ns show ed the la rge st d ec lines.

20



23/56

21


The GFCI da ta c an b e mo de led to

provid e a numb er of sub -ind ice s. Five of

these sub-ind ice s a re for spec ific industry

sec tors. These a re Asset Ma na ge me nt,

Banking, Go vernment & Reg ulatory,

Insuranc e a nd Professiona l Servic es. Eac h

sub -ind ex reflec ts the views of

respond ents from one sec to r a lone. It is

the refore po ssible to c ont rast the v iews of

pa rticular sec tors ab out financ ial ce ntres.

The Five Key Industry Sectors

Tab le 10 below show s the t op ten ranked

financ ial ce ntres in the industry sec to rsub -ind ice s. These ind ice s a re c reated by

bu ild ing the GFCI sta tistica l model using

only the questionna ire responses from

respond ents wo rking in the releva nt

industry sec to rs. The figures in brac kets

show how t he c entre has mo ved in these

sub -indic es sinc e GFCI 4:

It is not ice ab le tha t the se G FCI sub -

ind ices display a de gree of stab ility

despite the p revailing m ood of

unc erta inty. The top spec ialists in eac h

sec tor rema ining high p ositions; the ir

rat ings ma y ha ve suffered but their ranks

have not. In the Asset Ma nag em ent sub-

ind ex, Singap ore rose o ne p lac e to 3rd,

Gene va ove rtoo k Guernsey and

Luxemb ourg a dva nce d three plac es to

10th. It is no t a grea t surprise to see the

spec ialist c ent res Zuric h, Geneva ,

Guernsey a nd Jersey a ll in the top ten fo r

Asset Ma nag em ent which is whe re their

rea l streng th c ont inues to lie.

In the Banking sub-ind ex, New York

ed ge d o ut Lond on into 1st p lac e. Strong

banking c ent res suc h as Singa pore, Hong

Kong , Chica go , Frankfurt and Toronto a ll

fea ture in the to p 10. Boston rose fo ur

p lac es to 9th p lac e in this sub -ind ex.

The Go vernm ent & Reg ulato ry sub -ind ex

show s Lond on and New York switc hing

p lac es since GFCI 4, with Lond on

rega ining first p lac e. Tokyo c limb s two

p lac es to 6th, and Frankfurt rises five

plac es to 7th.

Rankings in the Insuranc e sub-ind ex

4. Foc us: Ind ustry Sec tors and

Area s of Competitivene ss

Table 10

Industry Sec to r

Sub-Ind ice s

(changes

aga inst GFCI 4 in

brackets)

Rank Asset Banking Government & Insurance Professional

Management Regulatory Services

1 London (-) New York (+1) London (+1) London (-) London (-)

2 New York (-) London (-1) New York (-1) New York (-) New York (-)

3 Singapore (+1) Singapore (-) Singapore (-) Zuric h (-) Hong Kong (-)

4 Hong Kong (-1) Hong Kong (-) Hong Kong (-) Singapore (-) Singapore (-)

5 Zuric h (-) Chic ago (+1) Chic ago (-) Hong Kong (-) Zuric h (-)

6 Jersey (-) Zuric h (-1) Tokyo (+2) Dub lin (+2) Geneva (+3)

7 Geneva (+1) Geneva (-) Frankfurt (+5) Tokyo (-1) Jersey (-1)

8 Guernsey (-1) Frankfurt (-) Pa ris (-1) Hamilton (+1) Guernsey (-1)

9 Dub lin (+1) Boston (+4) Zuric h (-3) Munic h (-2) Frankfurt (+3)

10 Luxembourg (+3) Toronto (+2) Toronto (-1) Geneva (+1) Chic ago (-)


24/56

rem ained fairly sta ble w ith the top five

c entres rem aining the sam e, a nd Dublin,

Ham ilton, a nd Gene va improving. The

rating s a re a lso unsurprising w ith the

ma jor insuranc e c ent res a ll fea turing

strongly.

Similarly, the t op five in Professiona l

Servic es rem ained stab le, but Gene va

and Frankfurt b oth rose t hree plac es to

6th and 9th respe c tively.

The Five Key Areas of Competitiveness

There a re five sub-ind ice s based up on thefive key a reas of c om petitivene ss. The

Instrumenta l fac tors used in the GFCI

mod el are g roupe d in the five key areas

of c om pe titivene ss:

I People involves the a vailability of g oo d

personnel, the flexibility of the lab our

ma rket, business ed uc ation a nd the

development of human ca pital .

I Business Environment covers

regula tion, ta x ra tes, levels of

co rruption, ec onom ic freed om a nd the

ea se of d oing business. Reg ulation, a

ma jor c om po nent of the b usiness

env ironm ent , is c ited b y que stionna ire

respo nde nts as a d ec isive fac tor in the

c om pe titivene ss of Lond on a nd New

York.

I Market Access c ove rs the levels of

sec uritisation, volume and value of

trad ing in equities and bo nds, as we ll asthe c lustering effect of ha ving m any

firms involved in the financ ial services

sec tor toget her in one c entre.

I Infrastructure ma inly co nc erns the c ost

and ava ilab ility of b uildings and office

spa c e, althoug h it also include s othe r

infrastructure fa c to rs suc h a s transport.

I General Competitiveness c ove rs the

ove rall c om petitivene ss of c ent res in

terms of mo re ge neral ec ono mic

fac to rs suc h as p ric e leve ls, econo mic

sentiment a nd ho w c entres are

pe rc eived as plac es to live in.

The G FCI que stionna ire a sks abou t the

mo st impo rta nt fac tors ofc om pe titivene ss. The numb er of times

that ea ch a rea w as mentioned is

summa rised in Table 11.

Clea rly the Business Environm ent is

viewe d a s a key area with over twice a s

ma ny mentions as the sec ond fac tor,

People. Business Environment is

me ntioned almo st a s ma ny times as all

other a reas co mb ined . This is c lea rly a

response to t he c urrent c redit c risis but

reflect s spe c ific c onc erns ove r taxation,

the rule o f law a nd the level of t rust in an

env ironm ent . Respond ents c urrent ly

seem to p artic ularly value a fair and just

business environm ent. One c om me nt

sum s th is up :

As a foreigne r ba sed in Lond on

wha t I rea lly ap prec iate is be ing

trea ted fa irly in business .

London b ased co mmercial banker

In order to g enerate the five sub-indices

by a rea of c om pe titiveness, the GFCI

fac to r assessme nt m od el is run with one

22


Table 11

Ma in Areas of

Competitiveness

Area of Competitiveness Number of mentions Main concerns raised

by respondents

Business Environment 73

Peop le 34

Infrastruc ture 32

Market Ac c ess 12

Genera l Competitiveness 8

Reg ulatory environmen t; rule of law ;

trust and taxa tion

Qua lity a nd ava ilab ility of sta ff; lifestyle

Transport links and airpo rts

Cluste r of p rofessiona l advisors; ac c ess

to international m arkets

Reputa tion and ma rketing


25/56

23


set o f instrume nta l fac tors at a time a nd

the results are c om pa red to ide ntify

which fa c tors influence which c entres.

Mo st o f the resulting sub-ind ice s a re fa irly

c losely c orrelate d to the m ain GFCI.

Inde ed , in the top ten there are very few

surprises. This ind ica tes tha t to b e a

lead ing financ ial ce ntre, strength in all

a rea s is nec essary. London is top in a ll

a rea s, New York is a ve ry c lose 2nd , whilst

Hong Kong and Singa po re share 3rd and

4th plac es throug hout.

Tab le 12 show s the top ten ranked

c entres in eac h sub-index (ag ain the

figures in brac kets show how the c entre

has moved in the sub-index rankings

c om pa red with GFCI 4):

The m ost no ta b le cha nges since GFCI 4are in the Infrastructure sub-ind ex whe re

Frankfurt and Boston ea c h rise three

plac es to 5th a nd 6th respe c tively, and

Paris rises seve n p lac es into the top ten to

7th plac e.

The Ge neral Co mp etitivene ss sub -ind ex is

the m ost sta ble o f the five sub-ind ice s,

with no c hang es to the to p seven, but

Boston ha s joined the top ten , rising three

p lac es from 13th in GFCI 4. The sta b ility of

this sub -inde x is no grea t surp rise it is

c losely co rrelate d to the ma in GFCI and

the top rankings in GFCI 5 are also

rem arkab ly c onsistent.

Rank People Business Market Access Infrastructure General

Environment Competitiveness

1 London (-) London (-) London (-) London (-) London (-)

2 New York (-) New York (-) New York (-) New York (-) New York (-)

3 Singapore (+1) Singapore (-) Hong Kong (-) Hong Kong (-) Hong Kong (-)

4 Hong Kong (-1) Hong Kong (-) Singapore (-) Singapore (-) Singapore (-)

5 Zuric h (-) Zuric h (+1) Chic ago (+1) Frankfurt (+3) Zuric h (-)

6 Frankfurt (+1) Chic ago (-1) Zuric h (-1) Boston (+3) Chic ago (-)

7 Chic ago (-1) Geneva (-) Frankfurt (+1) Pa ris (+7) Geneva (-)

8 Geneva (-) Dub lin (+2) Boston (+1) Chic ago (-1) Dub lin (+2)

9 Boston (+1) Toronto (-) San Franc isc o (+1) Zuric h (-4) Frankfurt (+2)

10 San Franc isc o (-1) Frankfurt (+1) Jersey (+1) Dub lin (+3) Boston (+3)

Table 12

Sub-Ind ice s

by Area s of

Competitiveness

(changes

aga inst G FCI 4

in brac kets)


26/56

The GFCI is based up on a to ta l of 26,629

financ ial centre assessme nts p rovided b y

1,455 financ ial servic es profe ssiona ls from

an online questionna ire. These

assessme nts a re weighted log arithm ica lly

to g ive mo re p rominence to the m ost

rec ent respo nses (see A ppend ix A).

By c om bining these financ ial centre

assessments with 57 ad d itiona l sou rce s of

da ta o n co mp etitiveness fac tors (the

instrumenta l fac to rs), the G FCI trac ks

glob a l rankings as we ll as identifying

mo re spe c ific trend s.

A summ ary o f the assessme nts g iven to

the 62 ce ntres in the GFCI is shown in

Tab le 13 below :

24

5. Assessments in More Deta il


Table 13

Assessments ofthe GFCI Centres

Financial Centre

London 1 1,289 801 164

New York 2 976 807 171

Singapore 3 677 738 188

Hong Kong 4 811 723 191

Zuric h 5 755 702 192

Geneva 6 721 668 197

Chic ago 7 525 671 210

Frankfurt 8 659 658 198

Boston 9 468 642 208

Dub lin 10 795 640 185

Toronto 11 459 663 206

Guernsey 12 584 652 218

Jersey 13 646 650 230

Luxembourg 14 658 641 205

Tokyo 15 518 660 218

Sydney 16 411 660 219

San Franc isc o 17 406 639 211

Isle of Man 18 522 638 213

Paris 19 685 614 193

Ed inburgh 20 603 627 215

Washing ton D.C. 21 382 596 229Cayman Islands 22 495 625 220

Duba i 23 581 622 211

Amsterdam 24 538 605 201

Vanc ouver 25 304 583 239

Montrea l 26 319 562 222

Hamilton 27 408 597 224

Melbourne 28 270 563 229

Munic h 29 403 607 250

Stoc kholm 30 373 556 224

Glasgow 31 207 563 215

GFCI 5 Rank Number of

Assessments

Average

Assessment

Standard

Deviation ofAssessments

continued


27/56

25


Financial Centre

Brussels 32 516 564 203

Gib ra lta r 33 245 588 213

British Virg in Islands 34 243 600 209

Shangha i 35 390 603 213

Bahamas 36 182 585 200

Monac o 37 191 583 208

Copenhagen 38 332 506 235

Oslo 39 279 485 239

Milan 40 408 532 209

Ta ipei 41 113 615 152

Vienna 42 340 520 212

Bahra in 43 299 541 220

Helsinki 44 284 490 234

Kua la Lumpur 45 137 588 200

Qata r 46 255 525 231

Madrid 47 405 511 193

Johannesburg 48 305 524 215

Mumbai 49 339 523 222

Bangkok 50 137 539 207

Beijing 51 322 513 215

Osaka 52 200 472 231Seoul 53 240 499 240

Sao Paulo 54 219 496 240

Rome 55 341 458 203

Welling ton 56 204 472 252

Lisbon 57 275 410 218

Prague 58 278 449 227

Warsaw 59 263 422 221

Mosc ow 60 358 403 221

Athens 61 298 364 206

Budapest 62 265 395 226

GFCI 5 Rank Number of

Assessments

Average

Assessment

Standard

Deviation ofAssessments


28/56

Tab le 15 show s tha t w ithin the top 30

GFCI c ent res, North Ame ric an c ent res

(with the exc ep tion of New York) have

fa ired we ll sinc e G FCI 4. Two of f-sho re

c ent res, the Ca yma n Island s and the Isle

of Ma n, also saw g oo d inc reases in

average assessments.

Tab le 16 show s the nine c ent res includ ed

in the GFCI questionna ire tha t we re not

rat ed in the GFCI as they rece ived few er

tha n 100 assessme nts ea c h (the minimum

numb er need ed for inc lusion in the

GFCI inde x).

26


Table 14

Top 20 Average

Assessments of

GFCI Centres

sinc e G FCI 4

Centre Number of Assessments Average Assessment

New York 214 799

London 274 798

Singapore 137 763

Toronto 84 745

Hong Kong 177 731

Chic ago 109 726

Zuric h 152 721

Geneva 160 712

Sydney 91 705

Cayman Islands 94 704

Boston 94 699

San Franc isc o 79 696Isle of Man 122 694

Tokyo 105 692

Frankfurt 141 686

Jersey 137 682

Vanc ouver 56 673

Dub lin 183 666

Guernsey 138 666

Shangha i 73 663

Table 15

Centres from the

top 30 with the

highe st inc rease

in averag e

assessments

since

City Code Up to GFCI 4 Since GFCI 4 Change

Vanc ouver 563 673 111

Montrea l 539 648 108

Toronto 644 745 101

Cayman Islands 606 704 98

Melbourne 546 625 79

Washing ton D.C. 581 658 77

Isle of Man 620 694 74

Boston 628 699 71

San Franc isc o 625 696 71

Chic ago 657 726 68


29/56

27


Among st these c ent res, Shenzhen is

interesting in tha t it rec eived a relatively

high a verage assessme nt. There w ere

how ever, only a sma ll numb er of

assessme nts g iven to Shenzhen a nd it will

be interesting to see how this c ity

performs when a greater number of

assessme nts have be en ob tained .

Seve ral respond ents d id ide ntify

Shenzhen a s bo th likely to b ec om e m ore

significa nt a nd a s a loc ation whe re their

firm is likely to op en a n office in the next

2 to 3 yea rs .

In add ition to a ssessme nts, na rra tive

responses to spec ific questions in the

GFCI questionna ire he lp to shed ligh t on

c hang es from one ed ition o f the GFCI to

the next. Among these que stions, the

GFCI que stionna ire asks whic h c ent res

respo nde nts think are likely to b ec om e

mo re signific ant in the next few years:

Duba i top pe d this list for GFCI 5 and as

one respond ent says:

It w ill be very interesting to see

how Duba i goes in the next

yea r or two . If there is a reg ulato ry

knee -jerk b y the USA a nd UK

go vernments, Duba i is now idea lly

plac ed to bene fit.

A Zurich b ased asset m ana ge r

Shang hai a nd Singa po re a re in 2nd a nd

3rd p lac es respec tively in terms of

likelihood of b ec om ing mo re significa nt in

the ne xt few ye ars. As one respo nde nt

puts it:

The d evelopme nt of financ ial

c ent res in Midd le East a nd Asia

should not b e und erestima ted by

policy m akers in the West

Geneva ba sed asset ma nager

Table 16

Centres with

Insufficient

Number of

Assessments to

be ranked in

GFCI

Financial Centre GFCI 5 Rank Number of Average Standard Deviation

Assessments Assessment of Assessments

Shenzhen - 25 628 188

Malta - 41 588 166

Buenos Aires - 51 541 227

Mauritius - 39 521 187

Rio de Janeiro - 47 515 220

Ta llinn - 74 509 271

Jakarta - 80 498 219

Manila - 74 447 198

St. Petersburg - 87 434 220

Table 17

Ce ntres Likely to

Bec ome More

Significant

Financial Centre Number of

times mentioned

Dubai 26

Shangha i 23

Singapore 13

Mumbai 12

Beijing 8

Abu Dhab i 8


30/56

There is an inc reasing na rra tive fo c us on

em erging c entres in the Midd le East a nd

Asia ac co mpa nied by a perception that

the ec ono mic c risis is of t he West s

ma king. Cha rt 5 howe ver co nfirms that

whilst de velop ing ce ntres have m ad e

prog ress in the GFCI ratings, the y ha ve

also b een a ffec ted by the financ ial crisis

as show n b y the GFCI 5 ra tings:

The GFCI questionna ire a lso asks

respond ents whe re their orga nisa tions

are m ost likely to op en o ffic es ove r the

next few yea rs, shown in Tab le 18.

28


Chart 5

Prog ress of

Ce ntres Likely

to Bec omeMore Significa nt

400

450

500

550

600

650

700

750

GFCI 5Rating

GFCI 4Rating

GFCI 3Rating

GFCI 2Rating

GFCI 1Rating

Singa po re

Dubai

Shang hai

Qatar

MumbaiBejing

Singa p ore

Shang haiDubai

Bejing

Mumbai

Qatar

Date >

GFCIrating>

Table 18

Centres Where

New Offices will

be Opened

Financial Centre Number of

times mentioned

Singapore 14

Duba i 13

Shangha i 10

Hong Kong 8

Beijing 5


31/56

29


Singap ore ha s do ne w ell in the ove rall

GFCI, respond ing to respond ents

priorities. The c ent re rose to 3rd p lac e

ab ove Hong Kong in GFCI 4 and reta ined

the position in this ed ition of t he Index. In

GFCI 5, Singa pore a lso rose to 3rd p lac e

ab ove Hong Kong a mo ng respo nde nts in

the Asset Ma nag em ent sub-index and

the Peo p le sub-ind ex.

Aga in, Asian c entres seem to b e the

foc us of g row th, even in turbulent times,

though Duba i continues to a ttrac t

interest. As one respond ent put it:

New York, Lond on, and Duba i are

fa irly aggressive in business

deve lop ment. Hong Kong has

also b een e ffective at it and will

bene fit no ma tter how or what

Sha ngha i or Beijing doe s.

Hong Kong b ased investment b anker

Other respo nses me ntion the pe rc ep tion

of Lond on s ag ing infrastruc ture, and

d iminishing fo c us on fostering a

c om petitive business environment . A

rep resenta tive exam p le is:

Lond on rema ins an imp ortant

c ap ital but I have serious

co nce rns ab out ta x regulatory

c reep , poo r transpo rt

infrastructure and slow p lanning

decision-making

Lond on b ased retail banking

executive

While Lond on doe s receive its sha re o f

c riticism from respond ents, it is not able

tha t the c ent re co nsistently reta ins its

po sition a t the to p o f nine out o f ten GFCI

sub -ind ice s. Lond on a lso ha s both the

histo ry and volume o f financ ial ind ustries,

and a suffic iently d iverse num be r of

streng ths to off-set short-term neg a tive

rea c tion within the industry.

Reg ulatory burde n co ntinues to a ttrac t

at ten tion from GFCI respond ents, with

numerous c om me nts c riticising the

co ntinued unc ertainty abo ut cha nges in

reg ulation a nd ta x law s not just w ithin the

UK but in many d eve loped c ountries.

Inde ed seve ral respo nde nts blam e

reg ulators in many lea ding financ ial

c entres for som e o f the c urrent p rob lems.

One a rgum ent p ut forwa rd is that the

reg ulatory autho rities have failed to

ma intain ad eq uate c omp etition in the

market plac e a nd c ompa nies have

bec ome too big a nd too powe rful to fai l.

If a c om pa ny is too b ig to fail then the

reg ulator loo ses po we r over that

com pa ny the comp any has bec ome

too big to regulate .

There is a lso c ritic ism tha t som e o f the

internat ional reg ulations are p ro-c yclica l

and ac t to e xag gerate the business

cycle:

Banks are b eing told o n the one

hand to extend mo re c redit, and

on the othe r hand the Basel II and

IFRS regulat ions a re enc ourag ing

ba nks not to lend a s they ha ve to

ma intain and streng then their

c ap ital ratios.

Zuric h ba sed risk ma na ge r

The foc us on the imp ortanc e of

reg ulatory cha nge s and restrictions

am ong respo nde nts to G FCI has

heightene d d ram at ica lly in light of the

glob a l fina nc ial crisis with a trend in

co mme nts pointing o ut that the best

regula tions eve n in turbulent t imes

are those g enerated b y governmentin coo pe rat ion with lea de rs in the

financial sector.

There a re, of course, other fac to rs tha t

c ontribute to the suc c ess and failure o f

financ ial ce ntres, som e o f which are

unde r the c ontrol of the sec tor and

go vernments tha t wish to enc ourag e it,

and many of which a re not:

The Eng lish lang ua ge and

time-zone fac tors c ontinue to

favo ur Lond on. The w ea ker

po und m ay he lp. Fisc al

and monetary policy m ay


32/56

improve with a c hange of

government.

Jersey b ased private ba nker

Respo nses to the G FCI give a strong

indica tion of co nnectivity how w ell

co nnecte d a financ ial c entre is with

other ce ntres. Respond ents a re asked t o

rat e o nly those c entres with which they

are fa milia r. It follows tha t the numb er of

assessme nts given to a c entre b y p eo ple

not b ased there, indica te how well that

c ent re is known b y (and possibly visited

by) non-residents at least those infinanc ial service s. Chart 6 below show s

the percentag e of p eople not ba sed in a

ce ntre who rated it:

As might be expec ted , the two globa l

c entres Lond on and New York are mo re

familia r to fo reigners tha n othe r c ent res.

There are howe ver, a fe w surprises lower

dow n the rankings. Dublin is in 4th p lac e,

Paris is in 7th and Dub a i is in 13th. The se

centres ap pea r better connec ted than

the ir GFCI ra ting w ould suggest. Pa rt of

this effect m ay b e explained by

ge og rap hica l proximity to ce ntres whe re

large numb ers of respo nde nts are b ased ,

but c onne c tivity is c learly imp ortant a nd

these results p roba bly bo de we ll for the

well c onnec ted ce ntres and we w ill trac kthe ir futu re progress with inte rest.

30


Chart 6

Top 20 Centres

most rate d b y

Respondents

not b ased there

GFCI rating >

City>

0.0 0.2 0.4 0.6 0.8 1.0

Isle of M an

Cayman Islands

Guernsey

Tokyo

Brussels

Chicago

Amsterdam

Dubai

Edinburgh

Jersey

Frankfurt

Luxembourg

Singapore

Paris

Geneva

Zuric h

Dublin

Hong Kong

New York

London


33/56

31


Of the 57 instrumenta l fac to rs used in the

GFCI 5 mo del the top 20 in terms of

correlation7 with the final index are:

This list is fa irly similar to p revio us versions

of the GFCI. This similarity ind ica tes tha t

the key me asures of c om pe titivene ss

have rem a ined fa irly co nsisten t. The m ore

ge neral me asures of we ll pe rforming

c ities (e.g . The World Com petitivene ss

Sc orebo ard, The Globa l Com pe titiveness

Inde x, The Com pe titive AlternativesSurvey and the Business Environm ent

me asure) a re c losely co rrelate d t o the

GFCI as might b e exp ec ted suc c essful

c ities tend to b e strong o n mo st

measures.

It is interesting t o e xam ine p a tte rns in

c hang es to instrume nta l fac tors

(rem em be ring tha t mo st fac tors are

upd ated annually and that only 22 of the

57 fac tors have bee n upd ated since

GFCI 4).

In suc h turbulent c ond itions, the b igg est

c hang es in the instrume nta l fac tors

values are tho se d irec tly relate to t rad ing.

Examining the c ap italization of Stoc k

Excha nge s, the ave rag e d ec line for the

excha nge s mo nitored by the World

Fed eration of Excha nge s (and loca ted

within G FCI c en tres) is in excess o f 47%. It

is unsurprising tha t sinc e GFCI 4 m ost

ma rkets ha ve shown large losses. Theb iggest losses are in Europe an m arkets

out o f the te n wo rst d rop s in

c ap italiza tion, six a re in Europea n b ased

stoc k exc hang es.

The vo lumes for sha re trad ing, investment

funds and bo nds have a ll increased

(ma ny quite sha rply) whic h is fa irly typ ica l

in times of vo latility. The va lues of b oth

share trad ing a nd b ond trad ing ha ve

a lso inc reased signific antly in ab solute

terms. How eve r, when a d justed for the

increa se in volume, the va lue of sha re

trad ing ha s d ropp ed by almost 27%. The

value of b ond trad ing ha s increased by

6. Instrumenta l Fac tors

Table 19

Top 20

Instrumental

Fac to rs by

Correlation

with GFCI 5

Instrumental Factor R2 with GFCI 5

World Competitiveness Sc oreboa rd 0.555

Globa l Competitiveness Index 0.547

Financ ia l Ma rkets Index 0.534

Competitive Alterna tives Survey 0.524

Priva te Equity Environment 0.521

Business Environm en t 0.480

Cap ita l Ac c ess Index 0.452

Index of Ec onomic Freedom 0.449Ec ono mic Freed om of the World 0.423

Globa l Offic e Oc c upanc y Costs 0.405

European Cities Monitor 0.401

The Ac c ess Opportunities Index Business 0.396

E-Read iness Sc ore 0.381

Ease of Doing Business Inde x 0.374

City Brands Index 0.369

Exec utive MBA Globa l Rankings 0.367

Corrup tion Perc ep tion Index 0.362

Opac ity Index 0.332

Super Growth Companies 0.321

JLL Rea l Esta te Transparenc y Index 0.297

7 R2, a co mmonly used

measure of correlation, is

used h ere. It should b e

noted that co rrelation is

not a reflection of

weighting - no weighting

of instrumental factors isused in the GFCI model.

Correlation is a measure

of the extent to which the

GFCI rankings are

explained by eac h

instrumental factor.


34/56

ove r 20%, pe rhap s show ing a transfer

awa y from e quity to bond s that a re

perc eive d as less risky.

Ano the r instrumenta l fac to r show ing

signific ant c ha ng es since GFCI 4 is

Ec ono mic Sentiment, an inde x com piled

by the Europ ea n Com mission to g aug e

the leve l of b usiness and c onsumer

c onfid enc e w ithin the EU. When GFCI 4

fac tors we re up da ted in mid 2008 there

wa s still a lot o f ta lk in the me dia that

Europ e c ould a void a d ee p rec ession.

Since GFCI 4 there ha s bee n a sha rpdec line in Europe (more tha n 25% on

av erag e). This reflec ts the g loom y outloo k

for Europe s ec ono my it is now being

pred icted tha t Europ e is hea ding fo r a

de ep er and longer rec ession than ma ny

othe r pa rts of the wo rld.

There ha s be en a wide sprea d increase in

Op erat iona l Risk as me asured b y the

Ec ono mist Intelligenc e Unit. Amo ng st the

ma rkets whe re op erat iona l risk has

inc rea sed by m ore than 10% are ma ny

Europea n c ount ries. Finland and Ireland

ha ve shown t he la rgest rises in this

me asure o f risk but c oun tries suc h a s

Portug a l, Belgium, the Ne the rland s,

Swe den, Denma rk and Switzerland ha ve

also shown sub sta ntia l rises. Outside

Europe, Austra lia and Sout h Korea a re

am ong the c ountries where the risk rat ing

has inc rea sed signific ant ly. Op erational

Risk for Cana da and the USA ha s

rem ained relatively sta ble.

There ha s bee n a n increa se in leve ls of

co rruption ac c ording to the Co rruption

Perc ep tions Inde x. Interestingly, the UKs

sc ore ha s increa sed the m ost in ab solute

terms althoug h it should b e no ted tha t

the UK is in 16th p lac e o vera ll out of 180,

ahe ad of the USA a nd Japa n (joint 18th),

and a numbe r of other lead ing c ountries.

Perceived c orrup tion ha s a lso inc reased

ma rkedly in Norway (no w 14th). Other

sign ific ant inc rea ses are in Russia (147th),

the Philipp ines (141st) a nd Italy (55th).

Countries where things have c hang ed for

the b ett er are Indo nesia (126th), Sout h

Korea (40th), Poland (58th), Qa ta r (28th),

and Bahrain (43

Documents

March 2009 en the Global Financial Centres Index 5