The Economist Asks

Is London losing its appeal as a financial centre?

There have been rumours this week that HSBC is considering transferring its headquarters from London to Hong Kong. Although it has dismissed such talk as speculation, whispers persist that some of Britain's biggest banks are preparing to bale out of the City. Faced with more taxes, thickets of red tape, interference with pay and a new and hostile regulator, the Bank of England, it is said Barclays could shift its headquarters to New York, for example, while Standard Chartered could be tempted by either Hong Kong or Singapore. 

Nonetheless, London remains Europe’s dominant financial hub. Despite its terrible weather and creaking transport infrastructure, London has built up critical mass in legal, accounting and fund-management expertise and most big investment banks have a presence there. Before the credit crunch, there was even talk that London would replace New York as the world’s financial centre.

So is London's financial centre in long-term decline? Please leave your comments below.

Voting on this question is now closed.Current total votes: 3386
58% voted for Yes and 42% voted for No
1300062755
Voting opened on Mar 7th 2011 and closed on Mar 13th 2011
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DC-Paddy wrote:
Mar 7th 2011 7:53 GMT

London has the advantage of being on-line (gratis of GMT) with overlap between Asian and American (North and South) markets.

I am not sure why they are suggesting the "financial centre" move to NYC or Singapore (HK is in China n’est pas) therefore eliminating any overlap between west and east. Our northern neighbors in Canada's banks and financial markets appear to be the most stable and actually make money. Why not Toronto?

Scidem wrote:
Mar 7th 2011 7:55 GMT

London is the story of yesterday. The financial centers of this century will be in US, China, and German.

Al-Shawaf wrote:
Mar 7th 2011 9:28 GMT

In evolution, the benefit of size has always been a temporary thing, eventually losing out to the species with nimbler traits. Likewise, all the big dominant financial centers of today will go in decline, no matter what their governors do. Successful organizations, and not only the financial ones, spread their presence to all continents to tap the talent pool, feel the local pulse and grasp the opportunities.

Mar 7th 2011 10:31 GMT

London remains a very strong financial centre for businesses who are focussed on Europe and Russia. But for businesses which are looking at Asia for their future then undoubtedly there is a pull towards Hong Kong or Singapore. This polarisation is likely to continue - London pulling business away from potential European rivals (e.g. Paris, Frankfurt etc) and having business pulled from it by Singapore and Hong Kong

Canuk wrote:
Mar 7th 2011 11:19 GMT

Lets hope the answer is "Yes".

The sooner the Uk banks take their speculative capital markets trading activities out of London and the other 600 + global banks operating the same morally corrupt speculative trading activities out of London do the same (UBS has 7,000 people in its London operation doing what social service to civil society in the UK one might ask and their central bank - SNB - would never allow them to do it in Swizerland and completely disrupt its national political economy as they and the rest have done in the UK)the better.

In the context of the overall political economy of the UK over the past century the international /global role of London has been an absolute economic, financial and social disaster for all UK regions outside of London and the South East (LSE), since at least the ending of the first world war and realistically, since that time from 1925 onwards when Norman of the BoE returned the UK to the gold standard in order to maintain the "international" role of sterling, and its pre war exchange rate against the dollar until it collapsed in 1931 (?)

There was at least a further "5" times sterling was overvalued for the same reasons - say 1939 / 1949 / 1967 / 1980 and 1990 which always had to be supported by high interest rates, and which, with the overvaluation until its devaluations thereafter, made a significant contribution to the devastation of UK manufacturing (international)industry over the whole of the twentieth century from which it was never able to recover.

It was not a co-incidence in my view that UK manufacturing was located in the non LSE regions, far away from the capitol, so the LSE could be spared from seeing first hand the appaling damage done to the social fabric of those cities, towns and villages where these expendable manufacturing industries were located.

Norman in 1925, stated at the time, that the decision to return to the gold standard would create "some suffering" in UK society and he and the other civil servant, financial and political LSE elites knew exactly where that would be, and it would certainly not be the LSE, and never has been to this day, even after the latest economic and financial collapse caused by the speculative morally corrupt trading practices of the UK and global banks based in London.

Instead of devasting the manufacturing industries to pay for their excessive greed over the past century (there is of course very little left), these London (LSE) elites are now embarked on tearing out the heart of the Public Sector work force so they can continue having one grand party after another, while the rest of UK civil society "suffers" with the full support,it seems, of the editors and journalists of the FT.

The so called "benefits" of the the LSE being the leading global financial centre are always bought to the fore, but never the real costs (as mentioned here) to UK civil society over all, even when such figures as Adair Turner and Paul Volcker are quite clear that the (speculative trading - they do nothing else) functions of the global banks based in London and New York serve "NO SOCIAL FUNCTION WHAT SO EVER" to civil society.

It would be fine of the LSE was in fact a city state, (which it should be) such as Singapore, but in order to control the continuing bouts of LSE excessive greed over the decades, the LSE has to be bought to heel from time to time at tremendous cost to the rest of UK civil society, as we are just witnessing once again.

After a century of mismanagement of the overall UK political economy by the LSE economic, financial (Treasury civil servants) and political elites, "WHEN" are we going to stop promoting the LSE as a global financial centre and move to become a balanced economy such as Germany, which has clearly maintained its non financial industries and 700 plus independent local banks and continues to be a post second war economic and social success.

I am not qute sure what kind of "Moral Compass" the LSE elites have been following over the past decades, particularly the last two, but having reflected some time ago on the damage they had caused to members of the British Empire, and got out, perhaps the LSE elites, particular the editors and journalists of FT, could take some time out and protect UK civil society in all regions of the UK rather than continuing to promote the LSE as a global financial centre.

Sherbrooke wrote:
Mar 7th 2011 11:19 GMT

One really underappreciated aspect of London is how many ties with the former British Empire are still in place. If we think about London it terms of the financial cetre of United Kingdom of Great Britain and New South Castralia, we might start to appreciate the size of the market it represents, especially considering the fact that outside Commonwealth there's little in terms of free market for resource companies to speak of. A possible (but not guaranteed) merger of London and Toronto exchanges may only speed things up.

Throw in Russia, Eastern Europe and Latin America into the mix, and this whole thing may start to look quite differently. I mean, there's a huge potential for expansion if only Toronto will be able to offer some of the services London does to the region it has connections to, and the other way round.

Nirvana-bound wrote:
Mar 7th 2011 11:31 GMT

London's financial centre has been in ongoing decline for a L-O-N-G time now. The 2008 financial meltdown was the final nail in its dissipated coffin.

I forsee more rats fleeing the fast sinking English ship. The exodus outta London is coming to financial institutions near you - SOON.

bobbybear59 wrote:
Mar 7th 2011 11:35 GMT

With transportation and communications improving at breakneck speeds you could have a financial centre in any country in the world.
Major banking and financial firms will find it easier to relocate to a friendly climate at a faster rate in the future.
The major stumbling block in the future will be getting top people to move but a better tax regime and safer environment will be
a major attraction.

domagaya wrote:
Mar 7th 2011 11:54 GMT

HSBC can transfer its headquarters from London to Hong Kong without transferring nobody but a few leaders, only changing his London's address for its Hong Kong's address. The impact for London would be minimal economically, but surely a loss of prestige. But the British Government is right to ask every sector of the society to help balance the budget.

Anjin-San wrote:
Mar 8th 2011 1:50 GMT

I believe the answer is NO, simply because of a factor the commentators so far has overlooked: Network Topology.

New York is one of only two marine cable landing point hubs in American Atlantic Coast (The other is Miami). Similarly, London is one of only two hubs in Europe (The other is Amsterdam). In Asia, there are three hubs : Singapore, Hong Kong, and Tokyo. Singapore is Asia's Western gateway, with Tokyo its Eastern counterpart, and Hong Kong turning rapidly into a central node and a gateway to China.

So, with electronic trading becoming dominant, and network latency becoming ever more crucial, locating trading centers in places that are NOT network hubs is counterindicated.

An Drew wrote:
Mar 8th 2011 2:38 GMT

One benefit of being a financial center is that being small in size wouldn't be that huge an impediment. This is something that seemingly benefits London. But, on the other hand, the same nature enables the industry to shift from a place to another if it finds its current home uncomfortable.

This applies to England, for instance, and not to the US. Even if there are tougher regulations, it is unlikely that US banks will move out of the country, and the reason for that is because they are there for the sake of being in the US. This is something that London doesn't enjoy: for whatever reason if they find London bothersome, they move out more carelessly.

caro* wrote:
Mar 8th 2011 2:40 GMT

I sincerely doubt that we will be left with no financial centre in Europe, it has always been a key political actor speaking of the union as a whole; neither its debt crisis nor China's uprising have gone so far to make us start questioning that. And if it is not London..which one else?

Daniel HARA wrote:
Mar 8th 2011 3:17 GMT

It is quite likely that some cities in Asia may look more atractive than London regarding banking. For instance, taxes in Hong Kong are doubtless a lot lower than in London. In my view, it would be no surprise that London may soon be challenged by Singapore or Hong Kong.
London is a over-crowded city and its services are becoming worse and worse. The British economy has not been growing for ages. The answer to the question is YES.

Skier1 wrote:
Mar 8th 2011 3:51 GMT

Why are the British media and British companies always so keen to talk down London! What is it with you guys... you should be talking it UP. London is one of the world's best cities and it is in a great position to remain one of the world's big 3 financial centers for the next century. London has relatively stable government and an excellent legal system. London has excellent utilities, excellent communications infrastructure and excellent culture. London speaks the world's business language, English (no, Chinese languages will not replace it in business, as it is too complex). And London is psychologically in the absolute center of the world because of the GMT timezone. It is time to stop this perverse British practice of destroying your successes.

Robbie398 wrote:
Mar 8th 2011 4:11 GMT

There is a shift of the centre of gravity towards the East as the Asian economies boom and the Old World stifles itself with over-regulation.

Subrabhama wrote:
Mar 8th 2011 6:31 GMT

London can no longer live in the fool's paradise of allowing all types of financial institutions to operate without any restrictions or with the so-called infamous 'light touch.' There was a competitive urge to outperform other centres like New York to get more business. Unfortunately, the U.K. paid a heavy price and is yet to come out of the financial quagmire. In the meantime, when it tries to impose regulation on pay and bonuses and make other attempts like breaking up the biggies (too big to fall!) into smaller and managebale units to safeguard against future risks, there are threats to move away from London. Last YEAR, One of the senior researchers in the Bank of England blurted out, "LET THEM GO." The lessons of the financial crisis have not seeped in - the lesson is that it cannot be business as usual.

DavidJay wrote:
Mar 8th 2011 7:08 GMT

@zR4T96bQR8 "Why not Toronto?"

Because all Western economies are drowning in red tape, over-taxation and over-regulation - all economy-crushing, all business-hostile.

Canada is no exception, it's only "better" when measured in relative terms against its direct southern neighbor, but that doesn't say much. When measured against international and historic norms it's as big a mess as the rest. Nothing can stop over-taxation, over-regulation and red tape from crushing economies and causing them to continue to deteriorate - meanwhile the more nimble and well-run economies continue to thrive and grow and open up - therefore it's inevitable that new financial centers will arise elsewhere.

The only way to reverse it, is to remove the crushing over-regulationism. Politically, that isn't going to happen, in fact by the day it gets worse and worse, there is NO sign that it is going to stop getting worse, and most people in Western economies have actually been convinced to think the amounts of red tape they see are 'normal'. The West's best days are behind it.

There are economies that recognize that the best way to create prosperity is to support basic liberties, and then get out of the way and let the people do the rest - like Hong Kong, and Singapore, or maybe even Chongqing. These will win, period. It's really that simple.

I haven't met anyone who has an international perspective - i.e. those who aren't firmly mired in the Western perspective - who realistically thinks otherwise.

DavidJay wrote:
Mar 8th 2011 7:12 GMT

@zR4T96bQR8 "Why not Toronto?"

Also, the US is Canada's biggest trading partner, and US fiscal and monetary policy are train wrecks waiting to happen. It's looking increasingly inevitable that the US will have a major economic crisis in the near future, and Canada will be heavily pulled down with it. By that time, Asian economies will have further consolidate their position as new emerging economic global leaders and superpowers, and will be positioning themselves as new economic centers.

Britinwarsaw wrote:
Mar 8th 2011 8:00 GMT

London is in renaissance, not decline. The banks do not like the reforms that is true and are therefore not averse to spreading rumors of their impending departure. This is just politics. London is a host city to all sort of cultures that seem to create a unique mix...French bankers, US Lawyers with Russian miners. This is supported by a unique combination of geographic and linguistic advantages. The links to world class and very international universities is also a factor. There is nothing particularly British about this mix than the readiness to leave well alone. The Germans would want to start planning and organizing it; the Chinese would start interfering with it. Yes, there should be tougher rules and clearer boundaries, but the City should be left alone. It benefits not just Britain, but Europe as a whole.

Purpleline wrote:
Mar 8th 2011 10:06 GMT

What people are missing is the fact London has several markets that are complimentary to it being the centre of the universe when it comes to financial services, from shipping to insurance. The expertise in Forex trading where the City leads the World by volume and experience and finally to English Common Law and the fact English contract law is the best in the World.

England is under constant attack and our coalition Gov't really are not helping however, that said the Labour opposition who got too close to the money and now actively conspire to weaken England at every opportunity in their game plan to federalise us will never work. Yes hedge funds may come and go but their clients like the fact they speak English, have protection under English Courts and in general the population working in financial services are honest and not corrupted.
My word is my bond is still the best advert for the city of London.

GiovanniDue wrote:
Mar 8th 2011 10:08 GMT

London is not the number one international financial center because of the British banks, but because of all the others. London should be worried if the Swiss, and German, and Russian, and USA banks are leaving the City. The British banks will be staying in Britain, like the Swiss banks staying in Switzerland. Even if they are thinking publicly about leaving.

Purpleline wrote:
Mar 8th 2011 10:24 GMT

In addition to my earlier post we must remember Hong-kong & Shanghai Banking Corp have previous. They purchased the Mighty Midland Bank to repatriate monies out of HK Asia in preparation for the return of HK to China (PRC).

Scottish bankers yet again playing the system to their benefit. Hence my position is if HSBC were ever to move back to HK they should be forced to split immediately and spin out Midland Bank for the UK and Samuel Montagu for merchant banking.

noisey maan wrote:
Mar 8th 2011 10:45 GMT

For me London started losing its appeal when I realized that the powers that are the City, and the powers controlling the city were connected, however shakily. The first thing that took flight, before capital, was ethics and morality, when a man's word was no longer his bond and when the regulatory authorities turned a blind eye, or in many cases seemed intent on protecting miscreants. The Equitable Life fiasco about sums up everything from the actual scam, failure in regulation, failure of government, failure of Treasury, and "no one is to blame". Equitable is but one example of disaster, and as it turned out, a minor one. Finally the government itself failed, to be replaced by yet another frightened maybe of killing the irresponsible geese that are reputed to be laying golden eggs, at least that what the geese are saying. So what? Didn't the same thing happen in the US? Yes, but New York has a much larger economic hinterland to enable it to recover if it does decide to regain its moral position.
If London is to have a remote chance of retaining prestige it has to think seriously of joining the Euro zone; if it doesn't then it will be superceded by Frankfurt, which may well happen anyway.

M Ahmer wrote:
Mar 8th 2011 11:43 GMT

It is not unjustified to ask the Banks to contribute more towards the economies they operate in, after all most of them were bailed out by governments / tax payers and now they are back to the position where they are earning fat profits. Even the banks which were not bailed out like HSBC should and I think they can contribute easily.

However, they are very influential and powerful, if they don't like the idea of being asked to pay more and be more regulated they may well decide to move on to more relaxed places. Or at least they will try to create such an impression to push the UK government go back on its efforts to get more out of the banks.

sanmartinian wrote:
Mar 8th 2011 1:30 GMT

to Canuk

Can my weak voice come out strongly in support of your views?

Your arguments and analyses are so identical to mine I almost feel jealous for not having written it myself

heated wrote:
Mar 8th 2011 1:33 GMT

Hurray for Canuk!!
The desire for larger exchanges(LSE+TSE)as an excuse to dampen the flight of financial institutions from London is a smoke screen.
We say increased regulation upon unscrupulous practises should be carried out, even if these institutions threaten to emmigrate. The long term viability of real value demand this.

heated

sanmartinian wrote:
Mar 8th 2011 2:28 GMT

to zR4T96bQR8 and Skier1,

Are you sure your argument of London being on GMT has anything to do with the matter at hand?

Sure, London time overlaps part of Asia time and American time.

But doesn't American time overlap part of European time and Asian time?

Or doesn't Asian time overlap part of American time and European time?

Or has lack of geographic knowledge again impaired financial reasoning?

The World has been found to be round like a ball for quite a bit of time, remember?

And GMT is only a convenient reference. Nothing important, except habit, would change if humankind decided to make Azores or Midway islands meridians the reference line.

Or even better: one meridian not crossing any land to avoid hurt feelings for not harbouring the honour.

Unfortunately, the only chances seem to be around 27ºW and even then we would have to contend with Greenlanders inflated ego.

Lado wrote:
Mar 9th 2011 3:19 GMT

Whilst recent economic upheavals may have driven the financial regulator in London to tighten the belt on banks, seeking less obscene bonuses and pay structure, it cannot afford, due to the economic gains from taxes etc to the government, to squeeze to the extent that the top banks start seeking to relocate their HQs to other parts of the world. These 'rumors' are more likely to be signals sent by the banks to bring the regulator back in touch with reality of the potential loss of income to the government should they continue to squeeze

Claude Nougat wrote:
Mar 9th 2011 10:59 GMT

It's not the first time that the end of London as a financial centre is proclaimed and it always bounces back.

I believe there's a sea change afoot in the financial world: because of Internet there's no longer any need for anyone to be in any particular place anyway. So London will lose "importance", along with every other financial centre around the globe: There'll be a re-arrangement among centres in function of banks' fundamental identities (Asians ones in Asia, European ones in Europe etc). Not because a particular centre offers advantages over another one, but because it offers cultural appeal.

And on the subject of culture, London is a winner. So that's why I voted no: I don't believe London is facing long-term decline. Sure, it's facing temporary disruption, particularly if the present government goes ahead with taxes and red tape, but that could be easily managed if the authorities realized (in time!) that they're headed the wrong direction.

John Kwijuka wrote:
Mar 9th 2011 1:52 GMT

It was not the 'boom' that initially attracted most financial institutions to London but rather the geographical location (time zone etc), a dynamic & diverse culture, political influence and a service (intangible) oriented economic model. These are still the core of London.

As speculation is tested for validity, a majority of the financial institutions are likely to increase the investment in London. The ‘boom’ in the Far East is likely to fund such investments.

I voted “NO” because London is actually gaining more appeal as a credible financial centre.

Mar 9th 2011 6:21 GMT

Judging on the risks when it comes to dispute resolution, London will remain a big financial center, although perhaps not the biggest, for as long as its legal framework remains stable and not going against the smooth functioning of such facilities. On this aspect London is better than Hong Kong, which has the uncertainty of China, and in some measures better even than New York, which seems to be on a more downward trend. Singapore is a good environment but lacks scale.

Mar 11th 2011 3:12 GMT

IF THERE ARE MORE BILLIONAIRES IN ASIA THAN IN EUROPE, WHY NOT THE FINANCIAL CENTRE. THE DEMOGRAPHIC CENTRE OF WORLD IS CENTRAL ASIA, NOT WESTERN EUROPE. LONDON IS CONGESTED, OFFICE/RES SPACE ARE COSTLIEST, YOU DONT GET THE STAFF CHEAP. EVEN CLIMATE IS RAINY AND COLD WITH TEMP WELL BELOW OUR BODY TEMP, FULL YEAR. I WONDER HOW PEOPLE EVEN SUGGEST TORONTO !!! HALF THE YEAR IT IS SNOW.
A FINANCIAL CENTRE HAS TO BE A SOCIALLY ACCEPTABLE CENTRE WITH GOOD CLIMATE.

THE RISING STARS ARE DIFC (DUBAI), MUMBAI, SHANGHAI & SINGAPORE. I PREFER DUBAI FOR ITS GOOD INFRA AND CENTRAL LOCATION.

THOSE WHO ARE NOT SCIENCE STUDENTS, BE INFORMED THAT REDUCING A TEMP FROM 40*C TO 20*C NEED ONLY 20% ENERGY OF THAT NEEDED TO RAISE TEMP FROM O*C TO 20*C, COZ IN FORMER CASE YOU ONLY HAVE TO EVACUATE HEAT.

LONDON IS LUCKY, ITS DECLINE IS SLOW AS PEOPLE DONT LIKE TO CHANGE/SHIFT. GMT IS ONLY A REFERENCE LINE, OF NO CONSEQUENCE

Daniel HARA wrote:
Mar 12th 2011 5:10 GMT

I have just read the article: "Financiers in Switzerland - Careful what you wish for" and got fairly surprised. Switzerland is a very well know financial centre. Who has never heard about UBS or Credit Suisse? The article says Switzerland is no good place for Britons to do bussiness. If this is the case, London is still on the map as a great financial centre, despite what I wrote in my previous comment.

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