Financial Centers Between Centralization and Virtualization

  • Michael H. Grote


The chapter examines the current and future role of European financial centers. The “virtualization” of space leads to the weakening of the benefits from agglomeration through the widespread use of information and communication technology. Virtualization works well, however, only for standardized information, like stock prices, but not for complex information requiring constant interpretation. For the latter, face-to-face contacts cannot be substituted, and thus, financial centers are here to stay.

Nevertheless, it is not clear how many financial centers will survive. The chapter finds strong competition between Europe’s first-tier financial center London and second-tier centers, such as Frankfurt and Paris. Due again to the nature of information, national centers will remain serving opaque domestic businesses. Thus, there is little competition between second-tier centers which are caught in between centralization – toward London – and regionalization toward the most opaque businesses within their respective countries.


Stock Exchange Spatial Proximity Complex Information Foreign Bank Agglomeration Economy 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Beaverstock JV (2002) Transnational elites in global cities: British expatriates in Singapore’s financial district. Geoforum 33:525–538CrossRefGoogle Scholar
  2. Boden D, Molotch HL (1994) The compulsion of proximity. In: Friedland R, Boden D (eds) NowHere: Space, time and modernity. University of California Press, Berkeley, Los Angeles, London, pp. 257–286Google Scholar
  3. Budd L (1998) Global cities and finance: A troubled relationship. In: Gravesteijn S, van Griensven S, de Smidt M (eds) Timing global cities. Nederlandse Geografische Studies 241, Utrecht: Koninklijk Nederlands Aardrijkskundig Genootschap, 67–83Google Scholar
  4. Castells M (1997) The power of identity: The information age – economy, society and culture. Blackwell, LondonGoogle Scholar
  5. Clark G, O'Connor K (1997) The informational content of financial products and the spatial structure of the global finance industry. In: Cox LR (ed) Spaces of globalization. Guilford Press, London, New York, pp. 89–114Google Scholar
  6. Coval JD, Moskowitz TJ (1999) Home bias at home: local equity preference in domestic portfolios. Journal of Finance (6):2045–2073Google Scholar
  7. Cowan R, David PA, Foray D (2000) The explicit economics of knowledge codification and tacitness. Industrial and Corporate Change 9(2):211–253CrossRefGoogle Scholar
  8. Davis EP (1990) International financial centers: An industrial analysis. Bank of London Working Paper Series, LondonGoogle Scholar
  9. de Smidt M, van Rietbergen T (2002) Stock markets for sale: European integration and the consolidation of stock exchanges. Tijdschrift voor Economische en Sociale Geografie 93 (2):208–213CrossRefGoogle Scholar
  10. Deutsche Börse (2005a) Annual Report 2004. Deutsche Börse, FrankfortGoogle Scholar
  11. Deutsche Börse (2005b) Proposed pre-conditional cash offer by Deutsche Börse for the London Stock Exchange plc. January 27Google Scholar
  12. Engelen E (2004) “Amsterdamned”? The uncertain future of a secondary financial center. University of Amsterdam, Working PaperGoogle Scholar
  13. Engelen E (2007) “Amsterdamned”? The uncertain future of a financial center. Environment and Planning A 39:1306–1324CrossRefGoogle Scholar
  14. Faulconbridge J, Engelen E, Hoyler M, Beaverstock J (2007) Analysing the changing landscape of European financial centers: The role of financial products and the case of Amsterdam. Growth and Change 38(2):279–303CrossRefGoogle Scholar
  15. French KR, Poterba JM (1991) Investor diversification and international equity markets. American Economic Review 81:222–226Google Scholar
  16. Fujita M, Thisse J-F (1996) Economics of agglomeration. Journal of the Japanese and International Economies 10 (4):339–378CrossRefGoogle Scholar
  17. Gaspar J, Glaeser E (1998) Information technology and the future of cities. Journal of Urban Economics 43:136–156CrossRefGoogle Scholar
  18. Gehrig T (1995) Korreferat zum Referat Norbert Schulz. In: Gallen B, Hesse H, Ramser HJ (Eds) Standort und Region. Tübingen, Mohr, pp. 79–81Google Scholar
  19. Gehrig T (1998) Cities and the geography of financial centers. CEPR Discussion Paper No. 1894, London.Google Scholar
  20. Grinblatt M, Keloharju M (2001) How distance, language, and culture influence stockholdings and trades. Journal of Finance 56:1053–1073CrossRefGoogle Scholar
  21. Grote MH (2004) Die Entwicklung des Finanzplatzes Frankfurt seit dem Zweiten Weltkrieg - Eine evolutionsökonomische Untersuchung. Duncker & Humblot, BerlinGoogle Scholar
  22. Grote MH (2007) Mobile marketplaces: Consequences of the changing governance of European stock exchanges. Growth and Change 38(2):260–278CrossRefGoogle Scholar
  23. Grote MH (2008) Foreign banks' attraction to the financial center Frankfurt: An inverted 'U'-shaped relationship. Journal of Economic Geography 8:239–258CrossRefGoogle Scholar
  24. Grote MH, Lo V, Harrschar-Ehrnborg S (2002) A value chain approach to financial centers: The case of Frankfurt. TESG Journal of Economic and Social Geography 93:412–423Google Scholar
  25. Grote MH, Täube FA (2006) Offshoring the financial services industry: Implications for the evolution of Indian IT clusters. Environment and Planning A 38:1287–1305CrossRefGoogle Scholar
  26. Hau H (2001a) Location matters: An examination of trading profits. Journal of Finance 56:1959–1984Google Scholar
  27. Hau H (2001b) Geographic patterns of trading profitability in Xetra. European Economic Review 45:757–769Google Scholar
  28. Kim S (1991) Heterogenity of labor markets and city size in an open spatial economy. Regional Science and Urban Economics 21:109–126CrossRefGoogle Scholar
  29. Kindleberger CP (1974) The formation of financial centers: A study in comparative economic history. Princeton Studies in International Finance 36(Nov)Google Scholar
  30. Laulajainen R (2001) End of geography at exchanges? Zeitschrift für Wirtschaftsgeographie 45(1):1–14Google Scholar
  31. Lee R, Schmidt-Marwede U (1993) Interurban competition? Financial centers and the geography of financial production. International Journal of Urban and Regional Research. 17 (4):492–515CrossRefGoogle Scholar
  32. Lo V (2000) Networking for localised knowledge: The case of the M&A-Sector. Working Paper Series SFB 403 AB-00-19, FrankfurtGoogle Scholar
  33. Lo V (2001) Wissensbasierte Netzwerke im Finanzsektor. In: Esser J, Schamp EW (eds) Metropolitane Region in der Vernetzung. Frankfurt: Campus, pp. 131–53Google Scholar
  34. Lo V (2003) Wissensbasierte Netzwerke im Finanzsektor. Das Beispiel des Mergers & Acquisitions-Geschäfts,Wiesbaden 2003Google Scholar
  35. Lo V, Schamp EW (2001) Finanzplätze auf globalen Märkten – Beispiel Frankfurt/Main. Geographische Rundschau 53(7–8):26–31Google Scholar
  36. Lo V, Grote MH (2002) Where traders go when stock exchanges go virtual: Concentration, dissemination or persistence? In: Balling M, Lierman F, Mullineux A (eds) Technology and finance: Challenges for financial markets, business strategies and policy makers. Routledge, London, pp. 90–203Google Scholar
  37. Loughran T, Schultz P (2005) Liquidity: Urban versus rural firms. University of Notre Dame, Working PaperGoogle Scholar
  38. Loughran T, Schultz P (2006) Asymmetric information, firm location, and equity issuance. University of Notre Dame Working PaperGoogle Scholar
  39. Lundvall B-Å (1988) Innovation as an interactive process: From user-producer interaction to the national system of innovation. In: Dosi G et al. (eds) Technical change and economic theory. Pinter, London, pp. 349–369Google Scholar
  40. Malloy CJ (2005) The geography of equity analysis. Journal of Finance 55(2):719–755CrossRefGoogle Scholar
  41. Martin R (1999) The new geographical turn in economics: Some critical reflections. Cambridge Journal of Economics 23:65–91CrossRefGoogle Scholar
  42. McCreevy C (2005) Stock market consolidation and security markets regulation in Europe. Annual lecture at Société Universitaire Européenne de Recherches Financières (SUERF), Brussels, November 30Google Scholar
  43. O’Brien R (1992) Global financial integration: The end of geography. Pinter, LondonGoogle Scholar
  44. Pinkowitz L, Stulz RM, Williamson R (2001) Corporate governance and the home bias. NBER Working Paper 8680Google Scholar
  45. Porteous DJ (1999) The development of financial centers: Location, information externalities and path dependence. In: Martin R (ed) Money and the Space Economy. John Wiley & Sons, Chichester, pp. 95–114Google Scholar
  46. Power D (2002) IT and institutions in the structuring of European finance: Urban impacts. Economic and Industrial Democracy 23(3):335–356.CrossRefGoogle Scholar
  47. Schmidt RH, Grote MH (2006) Was ist und was braucht ein bedeutender Finanzplatz? Bankhistorisches Archiv 45:11–27Google Scholar
  48. Storper M, Venables AJ (2004) Buzz: Face-to-face contact and the urban economy. Journal of Economic Geography 4:351–370Google Scholar
  49. Ter Hart HW, Piersma J (1990) Direct representation in international financial markets: The case of foreign banks in Amsterdam. TESG 81(2):82–92Google Scholar
  50. Thrift N (1994) On the social and cultural determinants of international financial centers: The case of the city of London. In: Corbridge S, Thrift N, Martin R (eds) Money, Power and Space. Blackwell, Oxford, pp. 327–355Google Scholar
  51. UBS (2006) UBS in Deutschland. UBS, FrankfurtGoogle Scholar
  52. Veltz P (1996) Mondialisation, villes et territoires. L’âeconomie d’Archipel. PUF, ParisGoogle Scholar
  53. Walter I (1998) Globalization of markets and financial center competition. Paper presented at the conference on "Challenges for Highly Developed Countries in the Global Economy," Institut für Weltwirtschaft, Kiel, 20 MarchGoogle Scholar
  54. Wójcik D (2002) Cross-border corporate ownership and capital market integration in Europe: Evidence from portfolio and industrial holdings. Journal of Economic Geography 2:455–491CrossRefGoogle Scholar
  55. Wójcik D (2007) Geography and future of stock exchanges: Between real and virtual space. Growth and Change 38(2):200–223CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Frankfurt Institute for Private Equity and M&A, Frankfurt School of Finance & ManagementGermany

Personalised recommendations