Slide 1

Professor Michael Mainelli, Mark Yeandle and Alexander Knapp, The Z/Yen Group

[An edited version of this article first appeared as “The Global Financial Centres Index” The Handbook Of World Stock, Derivative & Commodity Exchanges Mondovisione (2008), pages xxxv-xxxviii.]

City or State?

Financial centres have existed since antiquity, from ancient, nearly legendary, entrepôts such as Babylon, Samarkand, Constantinople, Marrakech or Timbuktu through to today’s London, New York City, Paris, Tokyo or Shanghai.  But how to measure them against each other - at the level of the culture (Anglo-Saxon, Han Chinese, Continental European or Arab), or of the nation-state (USA, UK, Germany or Japan), or at a regional level (Far East, Near East, Europe, North America)? For Jane Jacobs the appropriate ‘unit of analysis’ was cities rather than nations.  Cities are where people go to trade, and live to trade, a unique combination of residential, industrial, business and administrative activity.  Cities drive all national economies [Jacobs, 1984]. A city is distinguished from other human habitations by a combination of population density, extent, social importance or legal status.

Defining a city requires value judgements on what is, or isn’t, a city, that elude straightforward categorisation.  One can try to focus on ‘global’ cities using ranking systems, for instance the Globalization and World Cities Study Group and Network at Loughborough University (see published an interesting research bulletin [Beaverstock, Smith and Taylor, 1999] giving one attempt at ranking cities by importance:

Alpha World Cities
12 points: London, New York City, Paris, Tokyo
10 points: Chicago, Frankfurt, Hong Kong, Los Angeles, Milan, Singapore

Beta World Cities
9 points: San Francisco, Sydney, Toronto, Zurich
8 points: Brussels, Madrid, Mexico City, Sao Paulo
7 points: Moscow, Seoul

Gamma World Cities
6 points: Amsterdam, Boston, Caracas, Dallas, Dusseldorf, Geneva, Houston, Jakarta, Johannesburg, Melbourne, Osaka, Prague, Santiago, Taipei, Washington DC
5 points: Bangkok, Beijing, Montréal, Rome, Stockholm, Warsaw
4 points: Atlanta, Barcelona, Berlin, Buenos Aires, Budapest, Copenhagen, Hamburg, Istanbul, Kuala Lumpur, Manila, Miami, Minneapolis, Munich, Shanghai

But many global cities aren’t financial centres.

What Is A Global Financial Centre?

Financial centres funnel investment toward innovation and growth.  Vibrant, competitive financial centres give cities economic advantages in information, knowledge and access to capital.  Although financial centres compete with one another, the competition is not a ‘zero sum’ game.  A strong financial centre, whether domestic, niche, regional, international or global, connects the wider economy to the global financial community.  Cities that through their financial centres are part of the global financial network gain from global trade and growth.  Inward and outward investment opportunities increase the wealth of cities that have financial centres and the wealth of their citizens.

‘Traffic’ between the domestic economy and the global financial community is critical to national economic performance.  The key function of the domestic financial community is not its ability to service the domestic economy’s needs domestically, rather its ability to service the domestic economy’s needs wherever and however they are best serviced.  Thus, a key measure for financial centres is how effective they are at providing choice and access to global financial services.  On this measure, protected domestic financial players are clearly a hindrance.  Competition leads to appropriate connectivity with the global financial markets.  Global finance is a non-zero sum game and global centres can play many different parts, from niche specialist, e.g. Hamilton in insurance, to regional player, e.g. Sydney, to global, i.e. London and New York City.

In order to better understand what makes a successful financial centre, the City of London Corporation and Z/Yen Group created the Global Financial Centres Index (GFCI). GFCI was first published in March 2007 and has been updated twice since, September 2007 and March 2008.  The GFCI provides ratings for financial centres calculated by a ‘factor assessment model’ that combines instrumental factors with the responses of financial services professionals to an online questionnaire (the assessments of financial centres):

  • instrumental factors Objective evidence of competitiveness was sought from a wide variety of comparable sources.  A total of 62 external sources in five areas of competitiveness, i.e. people, business environment, market access, infrastructure and general competitiveness, are used in GFCI.  For example, evidence about the infrastructure competitiveness of a financial centre is drawn from a survey of property and an index of occupancy costs.  Evidence about a fair and just business environment is drawn from a corruption perception index and an opacity index, etc.;

  • financial centre assessments – the GFCI incorporates responses to an ongoing online questionnaire completed by international financial services professionals (see Chapter 7 for details) assessing financial centres with which they are personally familiar.  The online questionnaire runs continuously to keep the GFCI up-to-date with people’s changing assessments.  Responses are weighted only by time, i.e. more recent contributions have more weight.

The top 25 financial centres are shown below in Chart 1 (ratings are out of a possible 1000 points):

Financial Centre






New York



Hong Kong



























San Francisco
























Washington D.C.



Isle of Man












Cayman Islands



GFCI shows that London and New York are the two leading global financial centres some 90 points ahead of the next two centres.  Hong Kong and Singapore are ranked 3rd and 4th respectively, but more closely followed by Zurich, Frankfurt, Geneva, Chicago, Tokyo and Sydney, all within 45 points.  While the credit crisis causes reverberations around the world, London and New York continue to be very competitive as well as mutually supportive.  London retained its overall lead in all five areas of competitiveness, but has lost some of its lead over New York since 2007.  London’s stumble probably reflects the run on the UK bank Northern Rock and changes in the UK non-domiciled taxation system, both of which generated comment from respondents from September 2007.  New York has other competitive disadvantages including the more litigious nature of the US business environment and higher brokerage charges than in London, but both centres seem to remain neck-and-neck.  Among the financial centres to watch, the top three cities identified as becoming “…significantly more important over the next two to three years…” were Dubai, Shanghai, and Singapore.

Up and Coming?

Informed policy decisions can improve the prospects of financial centres.  Z/Yen classifies policy decisions into five areas of competitiveness, i.e. “decisions about”:

  • people - availability of good personnel, labour flexibility, education, business education, development of ‘human capital;

  • business environment – regulation, financial services regulation, taxation, corruption, economic freedom and ease of doing business;

  • infrastructure – international transportation, local transportation, telecommunications, quality, cost and availability of property and offices;

  • market access – levels of securitization, volume and value of trading; international financial transactions and access, diversity and choice in financial services;

  • general competitiveness – city ‘brands’, quality of life, sentiment and ‘feel good’ factors.

If we contrast a centre’s sensitivity to changes in the five key areas of competitiveness we can derive a measure of ‘sensitivity’. If a centre’s ranking changes markedly when only one of the five groups of factors is applied, it has a great deal of potential to rise or fall in the ranking.  If a centre’s ranking remains stable even though only one set of factors was applied, it is more likely to remain near its present position.  The chart below contrasts GFCI ratings with sensitivity:

GFCI Rating versus Sensitivity to Change in the Instrumental Factors

This categorisation identifies four types of financial centre:

  • Leaders: obviously London and New York, but also centres with strong scores in competitive factors and strong domestic markets;

  • Minor: centres that are not rated as highly, and are unlikely to improve in the near term.  It is interesting to note that Rome, Lisbon and Copenhagen fall into this category.  Each of these centres has a large domestic market, but seems unlikely to change its ratings soon;

  • Volatile: centres that are not rated as highly, but might be able to move upwards rapidly if they could improve in some respects.  Interestingly, São Paulo, a centre that many of the questionnaire respondents rated as ‘up and coming’ is in this category.  It is rated low at present but has the potential to improve its competitive position rapidly;

  • Evolving: centres with high ratings, but susceptible to change.  It is interesting to see that Dubai and San Francisco are already matching some of the established centres and have the sensitivity to instrumental factors to move towards the group of ‘leaders’. Stockholm is now on the border between volatile and evolving, and it will be interesting to track its progress.  Tokyo is classified as evolving and is a centre that used to count itself as a leader, but it is still recovering from difficulties it experienced during the 1990s.

Another measure of how volatile a financial centre’s ranking might be is the ‘spread’ or variance of the individual assessments given to each centre (i.e. some respondents assessed them highly and other respondents assessed them poorly). In Chart 3 the sensitivity to instrumental factors (from Chart 2) and the variance of assessments are contrasted:

Variance of Assessments versus Sensitivity to Instrumental Factors

Chart 3 shows three ‘bands’ of financial centres.  The ‘Unpredictable’ centres in the top right of the chart, such as Vienna, Vancouver and Munich, have a high sensitivity to changes in the instrumental factors and a high variance of assessments.  These centres have the highest potential volatility in GFCI ratings.

The ‘Stable’ centres in the bottom left of the chart (including London, New York, Singapore, Frankfurt, Paris, Hong Kong, and Zurich) have a low sensitivity to changes in the instrumental factors and a lower variance of assessments.  These centres are likely to exhibit the lowest volatility in future GFCI ratings.  ‘Dynamic’ centres in the centre have the potential to move in either direction.

Which Factors Matter?

The Regulatory environment is the most important of the areas of competitiveness measured by the comments of GFCI respondents, then People factors, such as the presence of a broad talent pool, then Infrastructure.  Financial centre competitiveness is not a ‘zero-sum’ game, advances in one city will benefit others with which it is interdependent.  In some ways the competition for financial centres distinguishing characteristic is regulation.  As one contributor put it:

The FSA listens to and understands our concerns.   In the USA regulators develop rules and expect you to stick to them.

Perhaps London has the advantage of the “Wimbledon Effect”, i.e. being seen as a place of fair dealing and regulation for locals and overseas participants.  Perhaps there is a role for one independent-of-domestic-markets, global financial centre.  London grew as a global financial centre from the Eurodollar markets when the US regulators helped people decide it was best to leave offshore dollars outside the control of US authorities.  Then in the 1980s, US companies began to borrow offshore, finding Euromarkets an advantageous place for liquidity, short-term loans and financing imports and exports.  Further, the ability in London to combine wholesale and retail banking after Big Bang in October 1986 removed another regulatory barrier.  Finally, in 2002 the Sarbanes-Oxley Act made London look comparatively even better regulated.  One director of a major US retail bank was particularly jealous:

“The trouble with regulation in New York is that it’s not joined up –there are too many people asking you to do too many things and half the time they contradict each other.  It would be great to have just one regulator.”

Other research has reported fears about over-regulation, such as the CSFI’s Annual Banking Banana Skins Survey [CSFI, 2005]. Many GFCI participants share those fears:

“The UK Government has taken financial services for granted, and any unwarranted tightening of regulation will kill the golden goose.  The regulatory industry has grown bigger without growing smarter.”

Turning to People factors, the increasing dominance of the English language in finance and the need for flexibility in staffing was a common thread amongst a number of interviewees.  Flexibility is particularly important because banking is highly cyclical and needs to increase and reduce staff numbers in response to market changes:

“We recognise that banking is a cyclical business and in the good times we need to increase headcount and in the bad times we need to reduce numbers.  We have consolidated our European operations in London because we can always get hold of really good experienced people when we need them and it is easier to ‘downsize’ - in Paris and Frankfurt this is an expensive, time consuming and stressful experience.”

As an international financial centre grows, staff gain skills and move jobs, the availability of skilled staff grows, thus enabling further growth of the international financial centre.  Soon, aspiring financial services job-seekers begin their careers by moving to the international financial centre, further reinforcing its reputation as a place to go to find suitably qualified staff.  International financial staff are hard to find, hard to keep and, arguably, hard to manage.

In all the discussions about building global financial centres, the role of exchanges is unclear.  While there are many financial centres that make much of their exchanges, there are many whose exchanges are peripheral, e.g. Geneva (7th), Boston (11th). In London the scale of OTC foreign-exchange trading dwarfs exchange-bases trading.  Further, in London the largest exchange by transaction volume (though not value) and probable market capitalisation (still unlisted) is Betfair, not the London Stock Exchange.  Exchanges may not have a central role in the formation of a global financial centre.  We may be confusing cause and effect, i.e. because you have a good financial centre you are more likely to have an exchange, but it’s not required.  Exchanges may be a bit like USA cities’ football teams.  USA cities often pay to attract or keep a football team, while development economists claim that football teams add no net value, though they are nice to have around.  An iconic exchange is nice to have around and, now that they are increasingly competitive corporations, clearly adds value, but an exchange is not essential.  In an increasingly dematerialised financial world where people can technically trade from almost everywhere, what is essential for a global financial centre is a lot of people transacting physical business with each other, on or off exchange.

Participants seem to choose to place their transactions and their business based on a number of criteria at once, so any taxonomic approach has difficulties.  It is a combination of factors that makes a financial centre successful, not just a single factor.  Jared Diamond derives an Anna Karenina Principle from the opening line of Tolstoy’s novel: “Happy families are all alike; every unhappy family is unhappy in its own way.” The Anna Karenina principle describes situations where a number of activities must be done correctly in order to achieve success, while failure can come from a single, poorly performed activity.  At the moment, London and New York are juggling well, as one banking respondent noted in accord with the Anna Karenina principle:

“I think that the [above] factors cannot be considered in isolation - the combination of factors has a greater impact on a financial centre being competitive than the individual elements.”

Whither or Wither?

The big question for the future is - one global financial centre or three or status quo? In 1990, the consensus on the global financial centres was London, New York City and Tokyo, with Paris and Frankfurt potentially in contention.  Today it’s only London and New York City.

“Rather than a trinity of equally powerful global cities that have formed in response to a common stimulus, an emphasis on history and structure points to variations in the past and present of the global city.” [Slater, 2004]

As we seem to have gone rapidly from three to two global financial centres, one could make a strong case that soon there will be only one.  London has the advantage of the ‘Wimbledon Effect, treating all comers fairly, while New York City’s proximity to the largest and most liquid domestic economy ensures it will ultimately prevail.  On the other hand, Europe is London’s domestic market as North America is New York City’s.  Both cases beg the question, where is the equivalent Asian financial centre? Back in 1999 Sir Willie Purves (former Chairman of HSBC) questioned whether “the UK is to Europe more as Manhattan is to the USA, or more as Hong Kong is to China?” Today we could raise an analogous question, “will China develop an onshore Manhattan or need an offshore London?" The rise of a Asian global financial centre is not inevitable.  Perhaps, similar to the development of the Euromarkets, there will be a need for an offshore Chinese market.  Is that Hong Kong (perhaps not offshore enough), Singapore, Taipei, Sydney, Tokyo or Dubai? Or is offshore already defined by London, or New York City?

Overall, locating a business in a financial centre is similar to other business location decisions – staff, access to customers, access to suppliers, costs, tax, government, culture and quality of life are all a rich mix.  London is rated as the best city in Europe [Cushman & Wakefield Healey & Baker, 2005] in which to locate a business, whether financial or otherwise.  Of the top 10 cities in Europe, London has a significant lead over Paris, which in turn has a significant lead over Frankfurt followed by Brussels, Barcelona, Amsterdam, Madrid, Berlin, Munich and Zurich.  Only regulation of financial services seems different.  Perhaps it’s really only for London and New York City to lose their role as the two global financial centres, rather than anyplace else’s to win.  London and New York City are not to everyone’s taste, but they are, and have been for over two centuries, largely to the taste of those who work in financial services.


If you are a financial services professional you will find all three reports online and you are encouraged to participate in the Global Financial Centres Index by taking a few minutes to rate centres you know:

Please click here.


  • Beaverstock, J V, Smith, R G and Taylor, P J, “A Roster of World Cities”, Cities, 16 (6), 1999, pages 445-458.

  •  Centre for the Study of Financial Innovation, “Banana Skins 2005 – The CSFI’s Annual Survey of the Risks Facing Banks”, February 2005.

  • Centre for the Study of Financial Innovation, “Sizing Up The City – London’s Ranking As A Financial Centre”, Corporation of London (June 2003), 41 pages.

  • Cushman & Wakefield Healey & Baker, “European Cities Monitor 2005”.

  • Diamond, Jared, Guns, Germs, and Steel, Random House, 1997.

  • Gordon, Ian, Halsam, Colin, McCann, Philip, Scott-Quinn, Brian, “Off-shoring and the City of London”, The Corporation of London, March 2005.

  • Jacobs, Jane, Cities and the Wealth of Nations: Principles of Economic Life, Random House, 1984.

  • Mark Yeandle, Alexander Knapp, Michael Mainelli and Ian Harris, The Global Financial Centres Index - 3, City of London Corporation (March 2008), 80 pages.

  • Mark Yeandle, Michael Mainelli and Adrian Berendt, The Competitive Position of London as a Global Financial Centre, Corporation of London (November 2005), 67 pages.

  • Mark Yeandle, Michael Mainelli and Ian Harris, The Global Financial Centres Index – 2, City of London Corporation (September 2007), 78 pages.

  • Michael Mainelli and Mark Yeandle, The Global Financial Centres Index - 1, City of London Corporation (March 2007), 64 pages.

  • Sassen, Saskia, “Global Financial Centres After 9/11”, Wharton Real Estate Review, Working Paper 474, Spring 2004.

  • Slater, Eric, “The Flickering Global City”, Journal of World-Systems Research, X (3), Fall 2004, pages 591-608.

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