The Future of Global Financial Centers: Will London or NYC Steal the Spotlight from the US?

Ever since the 1920s, the Financial Capital title has belonged to New York. But as the world undergoes unprecedented changes, particularly due to the implementation of FATCA (the Foreign Account Tax Compliance Act) and the ongoing negotiations post-Brexit, the landscape of global financial centers is beginning to shift.

London's Tenuous Hold on the Financial Capital Title

London, the erstwhile financial powerhouse, has already started losing its grip. Financial institutions have been relocating to Frankfurt and elsewhere. Even if Brexit does not materialize, the jitters it has caused and the uncertain political environment have prompted many financial organizations to disperse their staff across different locations to mitigate risks.

The Strength of the US as a Financial Capital

The United States holds a significant position in the financial world primarily because of two factors: the sheer size of its economy and the dollar as a primary currency. Unless a disaster strikes 50 to 100 years from now, the dollar is likely to continue being the primary trading currency. With this stability, finance is likely to remain concentrated in the US, though potentially distributed across multiple centers such as New York, Singapore, and Frankfurt, or possibly Shanghai.

The Uncertainty of Brexit and Its Impact

The looming Brexit negotiations present a significant challenge to London’s dominance. The single most important factor to consider is the outcome of Brexit and more specifically, what the final deal between the UK and the EU will be. Loss of passporting rights, which allow UK financial firms to operate freely in the EU, could be devastating. As of the day after Theresa May's 12-point Brexit speech, it appears that financial firms in the UK could indeed lose these rights.

Immigration and Work Permits Post-Brexit

Immigration and work permit policies post-Brexit are another critical factor. The financial firms in London need to attract and hire the best talent, which they have done mainly from Europe. However, the voting public in the UK seems to be demanding significantly lower immigration, while the government may realize a need for at least some highly educated immigrants. Balancing these conflicting demands is not straightforward, and there is uncertainty about whether a reasonable balance can be achieved.

Loss of Attraction for High-Performing Talent

London’s appeal as a destination for European high-performers has rapidly diminished. The Brexit vote made London and the UK less attractive to talent, whether talented or not. While some Brexiteers believe the government can simply implement a points-based scheme, attracting top talent is more complex. For most Europeans, including the talented ones, the glory of the UK and London is gone, tarnished by the uncertainty surrounding Brexit.

Competitive Landscape: Paris, New York, and Beyond

Other financial centers are vying to take London’s place. Paris, for instance, is seen as London’s primary European competitor. Financial firms have been relocating jobs to Paris due to its favorable regulatory environment and strong brand. Additionally, New York stands to gain the most from London's decline, according to CEO Jamie Dimon of JP Morgan. However, the impact of Donald Trump's presidency on New York’s international standing and its ability to attract talent is a wildcard.

Conclusion: London’s Decline?

Considering all these factors, it is highly likely that London has reached its peak and will slowly decline over the coming years. The financial world is at a crossroads, with multiple global centers becoming more prominent. The future will be shaped by how these centers adapt to the changing regulatory and economic landscape.