Foreign Banks, Telecommunications,
and the Central City

INTRODUCTION

Much attention is given to the movement of firms out of the central city to suburbs, small towns and overseas. Many theorists argue that telecommunications technologies will eliminate the need for central city locations and that urban land and transportation costs have also contributed to the dispersion of economic activities to the periphery of the metropolitan region (Pascal 1985; Richardson 1985). It is widely assumed that the flow out of the central city to suburban areas is applicable to all business firms. However, considerable variation exists in the vitality of central business districts and the way in which international business services locate in large central cities. All too often, it is assumed that cities are homogeneous, subject to similar economic and technological forces and equal in their capacity to respond to these forces. But the impact of economic and technological change depends on the functions that a city performs. This chapter looks at the way in which changes in international economic activity are affecting the role of selected central cities in the United States.

Despite the loss of manufacturing jobs over the past two decades, several cities are attracting firms that place a high value on proximity to clients, advanced business services and professional contacts of the kind most readily available in the central business district (CBD). Foreign banking is one industry that has expanded its presence in central cities, specifically New York City, Los Angeles, Miami, Chicago and San Francisco. This expansion coincides with the increased levels of foreign investment in US companies, securities, and real estate. Direct foreign investment in the United States in 1987 was about $262 billion, which produced about $10 billion in income (Scholl 1988). Total foreign investment in banking and finance was about S22 billion in 1987 and in real estate that figure was $24 billion (US Department of Commerce 1988). But the majority of this foreign investment is directed at major central cities and is not evenly distributed among US cities. For example, Japanese real estate investors prefer cities such as New York, San Francisco and Los Angeles because they offer stable investments in premier 'trophy' properties (Lindner and Monahan 1986; Kenneth Leventhal 1988). Other medium-sized cities such as Atlanta, Seattle, Boston and Phoenix are receiving attention from Japanese firms, but only after the investment opportunities in the larger urban centres have begun to diminish (Kenneth Leventhal 1988).

Much of the increase in foreign investment in the United States, particularly from the Japanese, can be attributed to the trade imbalance between the United States and other countries. Since 1960, US exports rose from about $35 billion to over S361 billion by 1986; however, foreign imports also have risen steadily since 1960, from about $25 billion to $484 billion by 1986 (Office of Technology Assessment 1987: 59-60). Much of this import activity is what the US Office of Technology Assessment calls 'invisible payments', which by 1985 were $110 billion, $65 billion of which is investment income (Office of Technology Assessment 1987: 64). Services have gradually made up an increasing portion of world trade. From 1978-84, the sum of all countries' exports and imports was $360 billion, of which services, excluding investment income, accounted for about one-fifth (Office of Technology Assessment 1987: 65).

Only a few American cities have fully benefited from this infusion of foreign direct investment, partly because central cities differ in their ability to generate economic growth and to attract international firms. For example, the proximity of Los Angeles and Seattle to the Pacific Rim has helped them capture much of the foreign trade with Asia. New York City is one of the nodes in the financial triangle with Tokyo and London. Miami's connection to Latin America is another example of a city which has grown as a result of international trade, particularly in financial services (Satterfield 1988). The central cities whose economies are participating in these networks have recognized that the platform of success is no longer local but global. New York City, which experienced an enormous loss of manufacturing jobs in the 1960s, has emerged in the past decade as a global business service centre whose economic growth is closely linked to international economic activities (Noyelle 1988a).

The proposition presented here is simple: a few US cities, including New York, Los Angeles, and Chicago are exceptions to the post-Second World War trend in the United States in which economic activity flows out of, not into, central cities. These cities are increasingly hinged to a dynamic set of international business services. The specialized nature of such international services is based on face-to-face transactions combined with a dependence on global communications systems. New York, for example, alone among most American cities, provides the requisite blend of physical proximity and international communications on the island of Manhattan. This chapter examines the role of international activity within the central city and focuses on New York's capacity to adapt to the internationalization of economic activity.

 

THE CHANGING ROLE OF THE CENTRAL CITY

During the past thirty years, most cities in the United States experienced substantial declines in population and jobs. The movement out of the central city has been attributed to such factors as: the preference of low-density housing, crime and congestion in cities, racial conflict and the rise of the automobile and interstate highway system (Bradbury et al. 1982). The widespread growth of decentralized office complexes, such as Tyson's Corner in Virginia, Walnut Creek outside San Francisco, Perimeter Center just north of Atlanta, and Costa Mesa/Irvine in Southern California, highlight the attractiveness of suburban locations for what were once traditional central city office activities (Leinberger and Lockwood 1986). A report prepared for the US Economic Development Administration pointed to the rapid rise of suburban office centres across the nation.

With surprising speed in the 1970s and 1980s, suburbs have evolved from a loosely-organized 'bedroom community' into a fully-fledged 'outer city'.... The suburbs have led the way in new job formation in both traditional blue- and white-collar occupations.. . . Indeed, suburban employment now exceeds central city totals in a large share of major metropolitan area labor markets.

(Hartshorn and Muller 1986: 1)

While this process of geographic dispersal has been occurring, a handful of cities have adapted to the loss of manufacturing and routine office activity by becoming international information capitals. Cities such as New York, Los Angeles and Chicago have undergone a remarkable transformation from 'centers of production and distribution of material goods to centers of administration, information exchange and high-order service provision' (Kasarda 1985: 33). A city such as New York, which once served as the nation's centre for such industries as printing and apparel is now an international information capital in which banks, advertising agencies, law firms and consulting firms, have replaced garment factories and printing plants.

Despite the fact that technology makes it possible to locate office activities at remote sites, near beaches, mountain tops, and in desert resorts, New York City continues to attract and retain business. The attraction of New York lies in the capacity to link telecommunications technologies to the face-to-face activity that has helped sustain the demand for Manhattan's approximate 327 million square feet of office space. The business transactions that occur in New York City are not constrained by the boundaries of the city or of the nation but by the telecommunications systems that link the city to other centres of business activity around the world. Communications technologies allow firms based in New York to convert new information into profit-making services and decisions that result in the production of goods and services around the world.

 

INTERNATIONAL FINANCIAL CENTRES

The deregulation of financial services and the advent of advanced communications has led to the internationalization of financial services firms. The globalization of the world's economy has created a new role for those cities that are international hubs of business, and those which are linked together by telecommunications technology (Moss 1987b). The emergence of New York, London, and Tokyo as world financial centres has been striking: 'From 1974 to 1986, the amount of world wide capitalization concentrated in the three leading centers grew from 73 percent to 80 percent' (Regional Plan Association 1988: 5). Walter highlights the continuing importance of a physical presence in today's financial markets:

The reasons for the rapid growth in the activities of financial institutions in various onshore and offshore markets lie primarily in the nature of the services provided. It is often (but not always) imperative for a financial institution to have a presence physically close to the client and an active presence in important markets in order to do business effectively ... the complex nature of financial services and client needs has in many ways enhanced the importance of reliable direct connections.

(Walter 1988:12)

The increased presence of foreign banks in New York City and other major US cities illustrates how the globalization of the financial services industry affects urban functions. Originally, international banking developed as a complement to international trade; the British banking system was greatly tied to the British empire, with most of its foreign mercantile activities supported by an active international banking system (Kindleberger 1983). Kindleberger notes that the separation of international banking and international trade is a fairly recent event; banks and business firms are now two parts of a world network rather than one. He also states that international banking has long been handicapped by the slowness and uncertainty of communications. This is no longer the case. According to The Economist, one-third of the world's foreign-exchange trade is done at the touch of a key (Economist 1988). Financial markets operate on a twenty-four hour basis aided by the electronic transfer of billions of pieces of information and funds among a small number of cities around the world.

Although electronic financial services make it possible to disperse the financial services industry, this industry is subject to both centrifugal and centripetal forces. Moreover, certain aspects of the financial services industry benefit from centralization while others benefit from decentralization (Levich and Walter 1989). Kindleberger (1983) and Levich and Walter (1989) note that although centralization is important to the financial industry by offering economies of scale in information gathering and processing, certain diseconomies exist that mandate the need for regional finance centres.

First, costly information about local borrowers, small firms, and local market conditions points to the need for face-to-face contact and decentralized operations ... second, national time zone differences (e.g., New York versus Los Angeles) impose another diseconomy from centralization.

(Levich and Walter 1989: 64)

These centralizing and decentralizing forces have created the need for several international financial centres around the world. As Thrift has wisely observed:

The natural habitat of commercial capital is the 'financial centre'. For three interrelated reasons the organizations of commercial capital tend to group together in these centres .. . to be near clients, . . . to be in close proximity to relevant markets, ... to tap into information on markets and the operations of banking and industrial corporations and the state rapidly and efficiently.

(Thrift 1987)

Although some US cities are becoming international finance centres, not all cities and regions will capture this type of growth. Chicago has been remarkably successful by expanding the hours of its futures markets and through the use of new technologies to extend the geographic reach of its futures markets. Cost reductions in the processing and transmitting of financial information have created one global financial market (Kindleberger 1978), and 'the emergence of international finance centers has facilitated the emergence of this global market' (Moss 1987a: 77). Further, the headquarters of the independent firms that once thrived in smaller cities are often subsidiaries of large, multinational companies and are located in world financial centres: 'Thus, communications and information technologies are strengthening a small number of world cities while weakening the traditional autonomy of many smaller cities' (Moss 1987a: 77). Of the top 100 US cities, for example, only ten cities have ten or more foreign bank branches. In contrast, forty-five of the top 100 cities have ten or more US commercial banks (Rand McNally 1988).

The internationalization of New York's financial services industry has been critical to the resurgence of the city's economy in the 1980s (Drennan 1988; Noyelle 1988; see also Warf Chapter 11 of this volume). Levich and Walter state that 'Overall, New York has enjoyed preeminence as the financial center of the United States. Tradition and habit are both strong forces favoring New York to continue in this role' (1989: 86). However, they note that this preeminence is not guaranteed because of the changing role of the United States in the world economy.

Foreign bank branch offices located in the United States have increased dramatically since 1970 (Walter 1988; Office of Technology Assessment 1987), with most situated in a limited number of cities. The US Office of Technology Assessment (1987: 90) in International Competition in Services, notes several reasons for the increased presence of foreign banks in the United States, including:

(a) deregulation of the US banking industry;

(b) relatively small involvement in Third World debt (compared with US banks);

(c) more experience providing nationwide services than US banks; and

(d) regulations which favour or make it easier for foreign banks to purchase failing US banks and savings and loans as compared with US banks, which are subject to antitrust laws.

The US Office of Technology Assessment notes that although foreign banks provide competition for US banks, they do not sell services produced abroad; rather they produce services 'with the aid of US workers, the US banking infrastructure, and often, US capital' (1987: 90).

Walter comments that just as American commercial banks followed American multinational corporations overseas during the 1960s and 1970s, as European, Canadian and Japanese investment increased in the United States during the 1970s and 1980s, 'foreign banks followed their respective companies into the American market' (Walter 1988: 27). The objective is to follow the customer; Walter also identifies 'customer leading' (i.e. attracting customers to new locations) and seeking local markets for competitive financial products and services as reasons for the increased presence of foreign banks (Walter 1988). The increased presence of foreign banks is most clearly associated with the need for quick and reliable information for decision-making purposes. In the financial services industry, face-to-face communications, therefore, are still valued as an important way of conducting business.

Walter (1988: 83) identifies three factors that make information important in competitive performance:

(a) that it be used in multiple forms of production or repeatedly for different purposes;

(b) that its half-life tends to be short and decays at a rapid rate; and

(c) due to the increased complexity of the financial environment, clients need assistance in distinguishing between relevant and irrelevant information.

All these factors suggest that a physical presence is necessary if foreign banks are going to compete effectively with American commercial banks and other non-banking financial institutions. Daniels notes that 'in contrast to trends in the location of population and employment (i.e. away from the central city), the internationalization of certain services may be a force for centralization rather than dispersal' (Daniels 1985: 196).

The remainder of this chapter will focus on the location of foreign banks in Manhattan and other US cities. The role of central cities has not diminished with the advent of telecommunications; rather, new industries and economic activities are replacing those that have found it more efficient to locate outside the central city. These new industries and activities are among the driving forces behind metropolitan growth in the 1980s and will continue to shape metropolitan growth for the rest of this century.

 

FOREIGN BANKS IN MAJOR U.S. CITIES

Studies of the internationalization of the financial services industry have largely focused on trade and regulation rather than business locational patterns. Not only have financial services concentrated in a few global hubs, but within New York, the location of specific types of financial institutions are arranging themselves in identifiable patterns. The locational behaviour of foreign banks in Manhattan supports the above hypothesis, not only on an industry basis as a whole but also in terms of nationality and global regions (i.e. Asia, Latin America, Europe and the Middle East).

Kindleberger notes that the reasons domestic banks establish foreign offices is to find outlets in capital markets and to obtain additional resources. He notes that 'domestic banks may create subsidiaries abroad for separate foreign operations for the same reasons - mainly to find outlets for surplus funds' (Kindleberger 1983). The recent increase in Japanese investments in the United States is related, no doubt, to the current trade imbalance between Japan and the United States. Perhaps most important, Kindleberger (1983) states that:

a bank may wish to establish a branch in a foreign country ... to have a presence there. This is called 'defensive investment,' investment designed not so much to make a profit in that place as to prevent a loss somewhere else, or in the system as a whole.

The US Office of Technology Assessment supports this statement by noting that 'US operations of foreign banks have seldom been particularly profitable' (1987: 90). Therefore, the focus must generally be on presence first, profit second.

Daniels (1986) states that those countries and certain cities with good access to telecommunications infrastructure and technology have attracted new services specializing in foreign financial transactions. Data from Rand McNally shows that twenty-three of the top 100 US cities (by population) had at least one foreign bank in 1988. New York City has over twice the amount of foreign banks as any other city. Only seven cities have more than twenty-five foreign banks.

Miami has attracted much foreign banking activity in the United States, even though historically it was not considered a business hub. Although thirty-five other US cities have a larger population than Miami, it ranks sixth in terms of number of foreign banks. This fact can largely be attributed to Miami's proximity to the Caribbean and Latin America; Miami serves as a financial gateway to Latin countries, both for outgoing and, frequently, for incoming capital.

As Table 1 shows, all of the listed US cities experienced an increase in the number of foreign bank branches from 1980 to 1988. In just eight years, several cities saw anywhere from a 39 per cent to 450 per cent increase. Dallas, Houston, Atlanta, Miami and Washington DC experienced a sharp increase in the number of foreign bank branches, all over 100 per cent. Cities that are traditionally associated with foreign banking such as New York, San Francisco, Los Angeles and Chicago also gained foreign bank branches, although not as many as the south-west and mid-Atlantic cities mentioned in Table 1.

 

Table 1. Number of foreign bank branches in US cities, 1980 and 1988

City 1988 1980 % Net Increase New York City, NY 277 210 12 Los Angeles, CA 104 60 73 Chicago, IL 67 48 39 San Francisco, CA 55 32 71 Houston, TX 46 25 84 Miami. FL 39 17 129 Atlanta, GA 28 10 180 Seattle, WA 14 8 75 Washington, DC 13 5 160 Dallas, TX 11 2 450 Boston, MA 8 4 100 Portland, OR 5 4 25 Cleveland, OH 3 1 200 Philadelphia, PA 3 2 50 Columbus, OH 2 2 0 Honolulu, HI 2 0 - Tampa, FL 2 0 - Charlotte, NC 1 0 - Denver, CO 1 1 0 Lexington, KY 1 0 - Long Beach, CA 1 0 - Tuscon, AZ 1 0 - Total 684 431 47

Source: Rand McNally & Company, Bankers Directory (September 1988 and 1980)

The downtown area of the City of Los Angeles - once only identifiable by the intersection of freeways rather than the presence of business activity - has been revived during the 1980s through the influx of foreign banks, financial service firms and business services. Much of this growth can be attributed to the tremendous growth in international trade. In the last seven years, 47 million square feet of office space has been added to the Los Angeles area, making it the fourth largest office market in the country with about 108 million square feet (Shulman et al. 1987: 8). According to Shulman, the influx of foreign capital has further increased the value and demand for Los Angeles real estate: 'More than two thirds of all major [downtown] office properties is foreign owned' and 'the Japanese own the largest amount of commercial real estate' (Shulman et al. 1987). Today, Los Angeles ranks second only to New York in relation to the number of foreign banks - 104 in 1988. Indeed, Los Angeles has now replaced San Francisco as the dominant financial centre of the West Coast (Lubenow 1987).

Overall, US cities had an overall increase in the number of foreign bank branches of 47 per cent or from 431 in 1980 to 684 in 1988. These figures coincide with the rapid increase in direct foreign investment in US business and real estate over the last decade.

 

THE LOCATION OF FOREIGN BANKS IN MANHATTAN

According to The American Banker 1988 Year Book, New York City has 221 foreign bank branches; Rand McNally calculates the number at 239 (234 of which are in Manhattan and the remaining five in Queens). The Banker, in March 1988 published a list of 353 foreign banks, agencies and other US incorporated subsidiaries of foreign banks in Manhattan, which in total have approximately 34,500 employees. Despite the discrepancies in statistics, it is clear that the presence of foreign banks in Manhattan is not insignificant.

Prior to 1970, there were about seventy foreign banks located in Manhattan. Several established a presence in New York City in the nineteenth century; these were typically Canadian or British banks except for one Hong Kong bank, which opened an office in 1880. However, the majority of foreign banks established offices in Manhattan during the 1970s and 1980s ( The Banker 1988). During the 1970s, 136 foreign banks opened offices in Manhattan and during the 1980s, an additional 148 were opened. These 283 banks represent about 85 per cent of the total number of foreign banks in Manhattan or a growth rate of 411 per cent since 1970.

Japan has by far the most bank branches in Manhattan, that is, fifty-one compared to the next largest presence, the United Kingdom with twenty-five banking offices followed by Italy with twenty-three offices. In the 1920s, there were five Japanese banks in Manhattan; by the 1960s the number increased to thirteen. Clearly, as with foreign banks in general, most of the growth in the number of Japanese banks in Manhattan occurred in the 1970s and 1980s. According to The American Banker, Japanese banks took the top seven spots by assets and account for sixteen of the top twenty-five world banks by assets. This is in striking contrast with the fact that only one US bank ranked in the top twenty-five by assets (1988) (the number of US banks ranked among the top 500 world banks (by assets) has continuously declined since 1956 from 295 to 102 in 1986).

Clearly, the above trends coincide with the increased presence of foreign banks in the United States and particularly in Manhattan. Robert Cohen notes that In the United States, foreign banks accounted for 16 percent of all commercial and industrial loans in 1987 with the Japanese accounting for nearly 9 percent of these loans' (Cohen 1989: 33). Most economists attribute the increased presence of Japanese banks to the appreciation of the yen; although Cohen also notes the increased competitiveness of foreign banks (Cohen 1989).

Within Manhattan, the actual location of foreign banks is concentrated in two geographic areas: Downtown or Lower Manhattan and Midtown Manhattan. Downtown Manhattan generally refers to the southernmost portion of the island from Canal Street south. Midtown Manhattan generally refers to the area between Fifty-Ninth and Thirty-Fourth Streets bounded by the East and Hudson Rivers. In terms of magnitude, more foreign banks are located in Midtown than Downtown, although for certain foreign banks, Downtown is the preferred location. Most foreign banks have chosen to locate within close proximity to banks of either their own country or region of origin. For example, of the approximately fifty Japanese banks located in Manhattan, thirty-five are located in Downtown and sixteen are located at One World Trade Center. Kindleberger points out that 'the location of banks is generally dictated by the nature of their business. Merchant bankers were originally at ports, court bankers at the capital or seat of power' (Kindleberger 1983: 588). He also comments on the tension between Midtown and Downtown Manhattan as banking centres, with Midtown having the allure of the multinational corporations while Downtown is still the centre of the capital market in New York City.

Asian banks

Japanese banks are located downtown, in close proximity to each other and to the Bank of Japan and the Japanese Finance Ministry. In addition, other Asian banks are situated downtown as well (Figure 1). Except for a select few, e.g. one Japanese bank on State Street and one in the World Financial Center, Asian banks in Downtown Manhattan are situated on either Broadway, Wall Street or in the World Trade Center. Asian banks have chosen, for a variety of reasons, to concentrate in a few locations downtown; a similar type of locational pattern is occurring in Midtown Manhattan (Figure 2). Most Asian banks are located along Park Avenue, from Grand Central to about Fifty-Eighth Street. A few Asian banks have moved as far as Third Avenue to the east and Madison Avenue to the west. Only one Japanese bank is located in the Rockefeller Center.

Latin American and other foreign banks

With the exception of Mexican banks and a few other banks, Latin American banks are located in Midtown Manhattan (Figure 3). Latin American banks are concentrated along Park Avenue as well as in and around Rockefeller Center. Only a few Latin American banks have chosen to locate east of Park Avenue or south of Forty-Eighth Street. In contrast with the locational patterns of Asian banks, only one Chilean bank has located in the World Trade Center; four Mexican banks on the other hand, are in Downtown, all of which are located within a few blocks of each other between Broadway and Water Street.

The emergence of 'commercial nodes' identified by region or country is also apparent from the location of Middle Eastern banks in New York City. Only one Middle Eastern bank (from Qatar) is located in Downtown Manhattan. The locational patterns of Middle Eastern banks in Midtown Manhattan is similar to the pattern of Asian banks in Midtown although the former are more dispersed and substantially smaller in absolute numbers (twenty-six compared to 100 Asian banks).

European banks

Japanese banks are not the only source of competition for American banks. Cohen notes that in any rigorous competitive analysis of the banking industry, 'a number of European banks are also playing an important role in shaping the global competitive picture in banking', including major banks from West Germany, Switzerland, France and Britain (Cohen 1988: 36). He also states, as our numbers suggest, that 'with the possible exception of British banks, European banks have been placing a great emphasis on establishing a global presence' (Cohen 1988: 36).

European banks, including the United Kingdom, France, West Germany, Italy and Switzerland, have a significant presence in both Downtown and Midtown Manhattan (Figure 4 and Figure 5). As shown, British banks (labeled UK) have concentrated in Lower Manhattan, predominantly on the eastern side around Wall Street. Unlike Asian banks, only one bank from Switzerland, Swiss Bank Corp., has chosen to locate in the World Trade Center. In Midtown Manhattan, save a few exceptions, all European banks are located between Park Avenue and Fifth Avenue, including several located at Rockefeller Center.

An article in The New York Times notes this trend, stating that 'the majority of foreign tenants would rather be Midtown than Downtown ... and rarely stray west of Sixth Avenue and east of Lexington' (McCain 1988). A large West German bank and Canadian bank have occupied much of what was once the E.F. Hutton Building (Fifty-Second Street near Sixth Avenue), which was vacated after Shearson Lehman acquired E.F. Hutton. Deutsche Bank AG has leased approximately 330,000 square feet of this building with options on an additional 200,000 (McCain 1988). The location of foreign banks in New York City indicates - as Thrift (1987) has observed - the high value that international financial firms place on proximity to clients and to information sources on banking and markets.

 

CONCLUSION

The data presented in this chapter demonstrate the powerful attraction that central business districts, such as Manhattan, possess for international financial service activities. During the post-Second World War period, New York City's role as a corporate headquarters and manufacturing centre has diminished, with corporate headquarters relocating to adjacent suburbs and manufacturing to other metropolitan areas and overseas. However, New York City has adapted to changes in the national and international economy, albeit with a loss in jobs for the unskilled. Once the nation's business centre, New York's economy is increasingly hinged to international financial services. Manhattan may have lost its domestic franchise, but it has emerged as an international hub, closely linked by global telecommunications networks to cities such as London and Tokyo.

Within New York City, there is a remarkable ecology of foreign banking, with specific nodes where banks of similar national or regional origin locate. For example, Water Street, on the eastern edge of the traditional financial district, is the site for major British Banks such as National Westminster, Barclays, Standard Chartered Bank, and Ulster Investment. Further, almost all Asian banks are located in Lower Manhattan on Broadway, Wall Street or in the World Trade Center. By contrast, most Latin American banks are situated in Midtown Manhattan, on Park Avenue or in the Rockefeller Center area. While the location of European banks is bifurcated, split between Midtown and Downtown Manhattan, they are still aggregated within specific sites in both areas.

These locational patterns highlight the importance of proximity in an age of advanced communications technology. Although it is possible for financial services firms to communicate among dispersed locations around the world twenty-four hours a day, the dynamics of international finance still put a high value on the information gained through personal contact and face-to-face communications. New York City may have a diminished national role with the growth of large-scale regional banks in the United States, but its role as an international banking hub has been reinforced with the deregulation of financial institutions and the growth of international telecommunications networks. Furthermore, the widespread use of new, sophisticated financial instruments requires an environment where uncertainty can be reduced by close contact and co-ordination among lenders and borrowers.

The global city - such as New York, London, and Tokyo - provides a setting for banks to express their social and cultural identities through locational and architectural decisions. The appeal of high-prestige locations represents one way to establish an instant identity in a dynamic banking environment, while also attaining geographic parity with one's competitors. Although the flow of money in the international market today transcends geographic boundaries and barriers, individuals and firms engaged in international finance still prefer to be near their key clients and up-to-date sources of information. When considering the role of the central city in a 'global economy' it becomes apparent that technology has not eliminated the need for physical proximity and that major central cities such as New York will continue to dominate and attract international financial service firms.

It is important to recognize that the growth of foreign banking activity in New York City has occurred at the same time that many financial institutions have moved their data processing and back office activities away from Manhattan to other boroughs in New York City as well as to New Jersey and other regions of the United States. Advances in communications make it possible for firms to consider new locations for routine office functions where a skilled labour force is available and where space costs are less than in prime central city sites. In both cases - the immigration of foreign banks and the dispersion of back offices - telecommunications technology has allowed firms to locate activities consistent with their corporate strategy and business interests.

For world financial capitals such as New York, London, and Tokyo, the need for high-value information producers and users to be near each other has created an intense demand for prime office space equipped with advanced communications systems. This has led to the rejuvenation of the Docklands in London, the utilization of new land at Battery Park City (in Downtown Manhattan), and proposed waterfront expansion in Tokyo. Telecommunications technology allows the financial services and products generated by people working in each of these cities to be marketed and distributed to other cities around the world. However, the benefits derived from being physically present at the information source are so powerful that only a handful of cities have been able to thrive as world financial centres in an era of advanced technology.

 

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Originally published in Services and Metropolitan Development
P.W. Daniels, ed.
Routledge Press. London. 1991