Lecture 1A: Defining International Financial Centers A Framework for Considering What Determines an International Financial Center

Where is this International Financial Center?

What is an International Financial Center? There are many possible dimensions to an International Financial Center, however, one important starting characteristic is to offer the necessary with infrastructure to support the financial needs of international businesses. Other characteristics of an International Financial Center include: 1.A center from which international financial business can be conducted profitably, easily and efficiently. 2.A center with skilled management and intellectual talent covering business, finance and interdependent services such as legal, insurance and accounting, to provide multi- disciplined teams that facilitate large cross borders transactions in the most efficient manner possible (e.g., in the shortest possible time frame; at a competitive cost).

Characteristics of an International Financial Center 3.A center with deep liquid and sophisticated money and capital markets and competitive tax and regulatory regimes. 4.A center with significant offshore business skills. 5.A center that can add significant value to financial services provided from it, through a workforce that can respond promptly and in an innovative manner. 6.A center with the world-class telecommunications, financial information providers, and IT capacity combined with a large, well educated, multilingual workforce. 7.A center where all facets of financial services: CEOs; senior traders, regional headquarters, treasury operations, data processing, and other support functions and can be located efficiently. 8.A center with an attractive environment (living and working) for business.

Categories of Financial Centers Global Financial Centers: These are centers that serve clients from all over the world in the provision of the widest possible array of international financial services. There are two true international financial centers: London and New York. Regional Financial Centers: they serve their regional rather than their national economies. Examples include Dubai, Hong Kong, Singapore. Non-Global and non-Regional Financial Centers: These are centers that provide a wide range of international financial services but cater mainly to the needs of their national economies rather than their regions or the world. Perhaps they are best referred to as national Financial Centers. They include Tokyo, Paris, Frankfurt, and Sydney Offshore Financial Centers: These are centers that many view as primarily tax havens for wealth management and global tax management rather than providing the full array of international financial services. They are jurisdictions that have financial institutions engaged primarily in business with non-residents and with external assets and liabilities out of proportion to the needs of their domestic economies. They include the Cayman Islands, Gibraltar, Isle of Man, Liechtenstein, Monaco, and Mauritius (IMF 2000 classifications).

Comparison of Financial Centers, 2006 Data from the Economist