But what is driving the growth of London in particular? One approach to this question is to ask executives in major financial companies, both in the UK and abroad, why they choose to locate business here. A number of these surveys have been conducted recently and they show several common factors. 11 London benefits from English as an international language of commerce, and from its time zone, which means the working day overlaps with Asia in the morning and America in the afternoon. London also has well established financial infrastructure and telecommunication networks. Many of those surveyed point to the regulatory and legal environment. This is partly a matter of the regulatory style – the “risk based and proportionate” approach that the Financial Services Authority has adopted based on general principles where possible. It is partly the simplicity of dealing with a single regulator. 10  Caballero, R. “On the macroeconomics of asset shortages” NBER WP 12753, December 2006. 11  For example, Cook, G. A. S., Pandit, N. R., Beaverstock, J. V., Taylor, P. J. and Pain, K. (forthcoming in 2007). “The role of location in knowledge creation and diffusion: Evidence of centripetal and centrifugal forces in the City of London financial services agglomeration”. Environment and Planning A. 4  BIS Review 29/2007  English law, which is also the basis for financial services law in the United States, prevails here, with the added advantage that practitioners are less likely actually to invoke the legal system.
And the eurozone’s financial depth has increased at twice the pace of the US over the past 10 years. 13 If this gap continues to narrow, I expect this to favour the growth of London as the main centre for Europe’s capital markets. The development of capital markets in Asia is further behind still and I would expect to see continued rapid growth in these markets in the next decade. The rationalisation brought by the single financial market in Europe should push in the same direction. The number of central counterparty (CCPs) clearing houses by ownership has halved in Europe since 1999. And there were over 650 mergers and acquisitions in the EU banking sector between 2001 and 2005, a quarter of which were cross-border within Europe. But the process has some way to go and as the European financial sector becomes more consolidated, and financial institutions become larger and more complex, they tend to become more intensive users of capital markets. The major UK banks’ trading book assets, for example, now account for over 30% of their balance sheet assets compared with little over 15% back in 2000. What of the countervailing – centrifugal pressures? The creation of Canary Wharf, the expansion of office space in the Square Mile and the West End has helped to allow the rapid expansion of recent years. But of course London is an expensive city with high land and labour costs.