But this year it is bleak December for these managers in London’s financial market as the US subprime loan-debacle –led credit crunch seemed to have greatly sapped the financial energy of the world’s leading money and investment centre.
In September, in particular, when it became clear that Northern Rock was having severe difficulty in accessing the financing that it needed, it had appeared as if the financial hub would simply collapse under the weight of the looming bad bank debts.In the last ten years, UK’s financial services sector comprising banking and securities, insurance and specialist services like shipbroking and mostly concentrated in what is called the City has expanded its size within the overall economy from a lowly 5.5 per cent at the start to nearly 10 per cent by 2006. And with this size,the sector has contributed 30 per cent to the griowth rate of the overall economy in the past three years.
London is estimated to be the biggest city economies in the world and its GDP was ranked the sixth highest last year out performaing many national economies including Sweden and Switzerland.
Across the UK, the financial sector supports over a million jobs, contributes nearly a tenth of the country’s GDP and pays 22 per cent of the income tax. It’s the global leader in international bonds, derivatives, foreign equities and foreign exchange. And just a couple of months ago, its position as the world’s number one financial centre was reinforced by the Global Financial Centre’s Index, which showed that it had increased its lead over New York.
London is also home to more foreign banks than anywhere else - banks from America, from Europe, and from Asia, like the Bank of China, which launched a new subsidiary here just a couple of weeks ago.
That is one example of the internationalism and openness that have developed with the City, and that have been characteristic of London for centuries. London has many other strengths too. It is well positioned to trade with financial centres in both the USA and Asia; it has an established culture of innovation in financial products; it benefits from the English language, and from British legal tradition.
And one of the major attractions is its highly skilled, and diverse workforce. That was one of the major strengths highlighted by the Financial Centres Index mentioned earlier - which put London top for human capital. Around 30 per cent of jobs here are filled by people born outside the UK, including a quarter of senior managers in financial and business services. And London was also rated highly in the Financial Centres Index, particularly in comparison to New York, for its regulatory system.
However, the government appears to be in no mood to accept that there is an urgent need to reform the sector to save it from what appears to be a looming extended cycle of depression. Its view is that this cycle , insofar as it exists, will be short-lived, simply because of what is officially seen as a strong position London is in and because of some of the attributes that it has.
The first, according to the government’s perception, is that Britain’s economy, and Britain’s banking sector have remained strong. The economy is indeed growing faster than any other G7 nation’s this year, and it is expected to continue to grow next year, as Britain extends its run of 15 years of uninterrupted growth.
The Chancellor has made a number of proposals for international reform, in response to what has clearly been an international series of events, and he plans to continue to work closely with the IMF and the Financial Stability Forum.
It was perhaps this confidence in British economy’s ‘amazing’ atributes that when the Northern Rock buckled in, the government came running with support funds financed with tax payers money. The government had the choice of letting the bank go but convinced that it would certainly lead to serious consequences for the banking system and for the British economy the government with its eyes wide open went and almost nationalised a private bank as it authorised the Bank of England to provide support .
The position now is that Northern Rock have announced that they are taking forward discussions with the Virgin consortium on an accelerated basis - but that they aren’t ruling out other bidders or alternative options.
As for the Government, it says it is happy to talk to any bidder that satisfied the principles that the Chancellor has set out for proposals for Northern Rock’s future - that it must protect the interests of the taxpayer, depositors and wider financial stability.
Speaking at a conference (London’s financial markets: Where next?) organised by The Economist last week, Economic Secretary to the Treasury Kitty Ussher conceded that sometimes it was tempting to respond heavy-handedly and to grab easy headlines,” but the dangers of over-reacting are demonstrated clearly by the Financial Centres Index report, which shows regulation to be New York’s most negative feature.”
And so, she said just the UK chose not to overreact, but to respond in a measured, proportionate way.
“We won’t move away from the smart, proportionate, risk-based approach to financial services regulation that has contributed so much to London’s strength. And we won’t move away from London’s internationalism and openness - because like our regulatory approach, this is a strength, not a weakness. Again, there are some who have challenged that, and suggested that a more protectionist approach would have prevented some of the effects of recent events.” She added.
She claimed that open and competitive markets are the best way to achieve sustainable growth,”they’re good for our businesses, because they drive innovation and productivity; and they’re good for our consumers, because they bring more choice, lower prices and drive up quality. And our openness is one of the reasons why Britain attracts more inward investment as a share of our economy than any other major country. That foreign investment is a sign of our success, and hundreds of thousands of jobs are connected to it.”