What makes a city an international banking and fintech hub?

#5 Los Angeles

If it continues on its current trajectory, a city better known for its actors and glamor is predicted to knock New York off the top spot.

The US Census Bureau recently reported that people are leaving New York at a faster rate than any other state in the US, with an exodus of 1.4 million people between 2010 and 2020. The New York Business Journal also reported that California is the preferred destination for those who leaving NY.

Los Angeles has seen an increasing number of fintech companies set up over the past decade, largely attributed to the high talent pool and lower real estate costs. Some reports also indicate that the COVID-19 pandemic, Brexit and political instability have contributed to entrepreneurs seeking out the sunshine city as their base for financial services.

According to Selby Jennings – a specialist recruitment agency that supplies tech talent – ​​the disruption in Los Angeles is also a driving factor.

Largest global banks in Los Angeles

• JP Morgan Chase & Co
• Goldman Sachs
• BofA Securities
• Morgan Stanley

#4 Shanghai

While China has long been a hub for international investment and trade, Shanghai has come into its own in the past decade, following the Chinese government’s announcement in 2009 that it would indeed be an international financial center by 2020.

According to reports from EY, the strategy to expand the city’s global economic importance has been underway for almost two decades.

The plan includes streamlining capital account convertibility, facilitating qualified foreign investors in Shanghai’s Lingang New Area. There are also plans to develop a capital pool from RMB to foreign currency to “facilitate the allocation and adjustment of an investor’s reserves in RMB and foreign currency”.

EY also notes that, in addition to expanding the derivatives market, China has been very active in attracting new, foreign investors – thus paving the way for international banks and wealth management ventures, as well as fund management companies to establish themselves in the city.

The largest global banks in Shanghai

• Haitong securities
• IEG – Investment Banking Group
• CVCapital
• Cukierman & Co. Investment House

#3 Hong Kong

The Hong Kong stock exchange is the fourth largest in the world – and the island’s low taxes also make it an attractive perspective for trading. Second, the former British colony has been a reliable business hub for APAC due to its robust legal framework that attracts a large number of key international and investment banks to its shores. And third, Hong Kong’s location has been instrumental in its success, as it has allowed it to act as the gateway for trade between mainland China and the rest of the world. It is also China’s second largest trading partner, after the United States.

This winning combination is supported by a population that is fully active in the banking and finance industry. According to the Hong Kong Monetary Authority, the island provides the free flow of capital, a full range of financial products and a large pool of financial talent.

In a recent report, the HKMA stated: “The financial sector had a workforce of over 258,000, or nearly 7% of the working population in Hong Kong in 2017, and contributed to around 19% of Hong Kong’s gross domestic product.”

The largest global banks in Hong Kong

• HSBC
• Hang Seng Bank
• Bank of China (HK)
• Citibank (HK)

#2 London

As the world’s second largest hub for fintech and finance, London has history on its side when it comes to size and importance. International trade has been a mainstay of the city since the Middle Ages, while Britain’s central bank – the Bank of England – is also, according to records, the second oldest bank in the world.

A recent report from the City Of London noted that despite the impact of the pandemic and Brexit, the financial services industry remains resilient. In 2021, UK financial services exports increased. The trade surplus is also still higher than in all other global financial hubs. The city is also home to over 30% of Europe’s unicorns, and London increased its headquarters’ share of Fortune Global 500 companies by more than a third. It is also Europe’s leading center for asset management.

Largest global banks in London

• HSBC
• Lloyds Banking Group
• Royal Bank of Scotland
• Barclays

#1 New York

Despite the glitzier and sunnier Los Angeles snapping at its heels, New York – and not least Wall Street – remains the global financial leader of the world’s banking hubs.

Home to the Federal Reserve Bank of New York in addition to 154 investment banks, the New York Stock Exchange is also the world’s largest exchange by market capitalization. The diverse cultural melting pot of New York means it has long attracted the world’s biggest banks, including Merril Lynch, Morgan Stanley, Goldman Sachs and JP Morgan Chase.

Over the years, New York’s location has also played a role in the bank’s success. Although Philadelphia was originally the banking capital of North America, New York overtook the city due to its strong commercial trade; this was largely due to the completion of the Erie Canal in 1825.

When New York became the gateway to the United States, it attracted a dense concentration of public and private banks, as well as trading and insurance companies. Today, the banking fraternity is firmly entrenched in the financial district, and the New York City metro area alone contains over 200 banks.

But perhaps the most important factor is the presence of the Federal Reserve Bank of New York. While the city is home to 12 US Federal Reserve Banks, New York’s Federal Reserve Bank is by far the largest (by assets), the most active (by volume), and the most influential of the Reserve Banks. It also serves as the market agent for the Federal Reserve System, because it houses the Open Market Trading Desk and manages the System Open Market Account, which is the sole fiscal agent of the US Treasury, which is the holder of the Treasury’s general account, and the custodian of the world’s largest gold stockpile reserve.

Largest global banks in New York

• JPMorgan Chase & Co
• Citigroup Inc
• Goldman Sachs
• Morgan Stanley

Changes in the banking area

Alexander Perko, Head of Strategic Partnerships for Minka gives us his insights and predictions for the market over the next 18 months as digital currencies continue to dominate discussions.

“In today’s international market, there is still a need for cheaper remittances in developing countries, and a need for reduction everywhere. For example, workers from developing cities in London or New York may need to send funds home and need them to be cheaper. As outlined in the last The BIS report, cities like London and New York play a huge supporting role in economic development, especially in terms of financial inclusion.

More economically developed countries clearly dominate the global financial markets, creating hubs to support the fast-growing sector. In addition, mobile wallet usage is set to continue to flourish, even with the majority of users in China and the Asia-Pacific region, the number is expected to jump 74% to 4.8 billion globally over the next five years.

There is also still uncertainty about the benefits or validity of CBDCs to consider. According to the UK Parliament, if CBDCs are introduced, it is inevitable that some people will transfer money from their bank accounts into CBDC wallets. This seismic shift could result in a massive unbalancing of the existing financial duopoly that exists, with central banks reducing the ability of commercial institutions to lend and make money. The resulting fear of banking and increased costs of financial services for consumers can easily outweigh the benefits that CBDCs offer.

Ultimately, banks walk the fine line of not losing their dominant position in order to maintain the financial stability of private money networks, such as cryptocurrencies including Bitcoin. International banks must avoid the risk of jeopardizing the financial security of the millions of people who have investments in these alternative currencies by trying to liquidate them.”