International Banking Centers, Geography, and Foreign Banks

This essay reviews much of the recent literature on international financial centers from both economics and geography and critiques the thesis of an "end of geography." Banks have dispersed from traditional centers those activities involving frequent routine, standardized, and small-scale transactions. At the same time, the banks have kept in the international financial centers those activities involving innovative, customized, and large-scale transactions. In all of this, place still matters, but different places matter for different activities. Finally, foreign banks make their greatest contribution to their host center when the presence of foreign banks enhances domestic competition and innovation. The innovation that the rivalry between institutions induces makes the environment in international financial centers a turbulent one.