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Helaba Study “Financial Center of Frankfurt: Making Further Headway”

Frankfurt has assumed the leadership role among the financial centers in continental Europe. This is the conclusion that Helaba’s economists arrived at in their anniversary study “Financial Center of Frankfurt: Making Further Headway.”

Herbert Hans Grüntker, Chief Executive of Helaba, emphasizes, “In the continued competition between locations, it is important for the German financial center to capitalize on its strengths and to clearly advertise them to the world of finance. After all, Frankfurt has a great deal to offer.”

In their current assessment of the financial centers Frankfurt, Paris, and London, Helaba’s economists applied five core criteria that they consider indispensable for an international financial center to position itself successfully in the long term. These are banks, stock exchanges, finance-related teaching and research, trends in the financial sector, and location-specific qualities. 

London remains the undisputed top financial center in Europe, but is not a leader in every respect. For the financial center criterion of banks, all three locations were given a mid-range assessment. This is because, despite all the efforts made, the situation in the banking sector is generally worse now than it was at the time the first Helaba financial center study was published in 2006. There is continued pressure for consolidation and adjustments in the sector are having a stabilizing effect. Although the increased regulatory and supervisory requirements are producing higher costs for banks, they have also led to improved capitalization and a reduction in balance sheet risks. In comparison to other banking locations, the employment trend in Frankfurt has been fairly robust. Analysts project a total of around 62,000 employees in the city’s banks at the end of 2017, which would represent a decline of only 1% from autumn 2015. In this respect, the ECB is becoming synonymous with a guarantee for employment and a safeguard for the long-term attractiveness of Frankfurt as a banking location. 

With respect to the criterion of stock exchanges, the creation of a European super exchange would raise the bar for the growing competition from overseas. If market capitalization had been the decisive factor in the planned merger between Deutsche Börse and the London Stock Exchange, in Helaba’s view this would have favored locating the headquarters in Frankfurt. The assessment of the three stock exchange locations is based on the assumption that the merger will take place as planned with the headquarters being in London (and no Brexit). “This would then further strengthen London’s position and Frankfurt would become a junior partner, albeit with a stock exchange that would continue to be a major global player,” explains Dr. Gertrud Traud, Chief Economist and Head of Research. “As part of a multinational exchange, Paris would play a lesser role in relation to the European super exchange. If the planned merger should happen to fail, Frankfurt will be able to go its own way with its head held high,” adds Dr. Traud.

In terms of financial sector teaching and research, Frankfurt has made substantial progress and has increased its international standing with plenty of room for further improvement. The combination of Frankfurt’s Goethe University and the Frankfurt School of Finance and Management, which complement each other, offers an attractive, top-caliber range of teaching and research opportunities. At the same time, the German financial center does not enjoy the same prestigious tradition of educational institutions as do its British and French counterparts. Nevertheless, there is certainly more Frankfurt could do to promote its vibrant, visibly more competitive network of intellectual infrastructure in a more self-confident way.

With regard to trends in the financial sector, the German financial center has retained its position in the middle of the pack, while the corresponding number in France has slipped back. Today, digitalization is the dominant issue. Technological change in the banking industry is primarily driven by FinTechs and large internet corporations. The United Kingdom is the leader in this field, but Germany is not far behind, whereas France is not yet considered a globally promising FinTech destination. The pooling of efforts in continuing the expansion of Frankfurt to become the German and continental European FinTech hub is of crucial importance. “For Frankfurt to maintain and develop its position, expanding the city’s status as the German and continental European FinTech hub as well as further strengthening its intellectual infrastructure in respect of a financial center’s capacity for innovation will be of crucial importance,” Dr. Traud states. The rapid establishment of a technology center constitutes a significant milestone in this respect.

Frankfurt is not only better positioned than Paris in the trends criterion but also in terms of location specific qualities. Helaba’s analysts view the relatively expensive office rent and high cost of living in the French capital as a disadvantage for its location, which are also unlikely to change in the long run. Frankfurt also scores points in the competition of financial sector locations thanks to its function as a transportation hub, including having the advantage of short distances.
Overall, the financial center of Frankfurt has successfully held its own in these difficult times for the financial sector. Since 2006, the German financial center has made further headway in numerous respects and has made up a good deal of ground on the French capital in particular. Thus, the relative significance of the three big European financial sector locations is now clear: London before Frankfurt and Frankfurt before Paris.

Download: Helaba Study “Financial Center of Frankfurt: Making Further Headway”

 

 

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