frankfurt financial centre

FRANKFURT AS A FINANCIAL CENTRE FINANCIAL INSTRUMENTS AND INSTITUTIONS

Ane García

Marta Llanos

Andrea Murillo

Natalia Peña

FRANKFURT AS A FINANCIAL CENTRE

Institutions and financial instruments Página 1

INDEX

1. INTRODUCTION

2. HISTORY AND EVOLUTION OF FRANKFURT AS A FINANCIAL

CENTRE

3. ECONOMIC RELEVANCE IN THE REGION’S ECONOMY

4. ROLE IN THE MAIN FINANCIAL MARKETS

5. FINANCIAL CRISIS: IMPACT AND CONSEQUENCES

5.1. FINANCIAL INSTITUTIONS

5.2. EMPLOYMENT IN FINANCIAL SERVICES

6. REFERENCES



1. INTRODUCTION

Frankfurt (Frankfurt am Main in Germany), is the fifth most important city of Germany

and the most important of Hesse. Since the enlargement of the European Union in

2013 the geographic centre of the EU is in Frankfurt. Frankfurt is also a centre of

commerce, culture, education, and tourism and web traffic.

Frankfurt has been Germany’s financial centre for centuries, since Roman’s

settlements at 3000 BC. The main reason of this is its geographical location, economic

strength and the support of the monarchy and wealthy dynasties who developed their

businesses in Frankfurt.

However, Frankfurt has suffered some complications, as wars and occupations, which

have destroyed it. Besides it, although at a political level the capacity to modernise and

innovate had offered Frankfurt’s merchants the best commercial scope, Frankfurt’s

political aspirations were ruined with the choice of Berlin as the capital of the Federal

Republic in 1949. As a result, this important city puts all its energies into the financial

role.

In the last decades, Frankfurt has become a cosmopolitan city due to the financial

services, the central location, outstanding infrastructures and high academic choice.

These characteristics make Frankfurt a marvellous place for living and working.

So that, Frankfurt is one of the world’s most important financial centres, and it is home

to the European Central Bank, Deutsche Bundesbank, Frankfurt stock exchange and

several commercial banks. The Deutsche Bundesbank is the central bank of Germany,

and therefore, part of the European System of Central Banks. In addition, the Frankfurt

stock exchange which began trading in 16th century is one of the world’s largest stock

exchanges and accounts for over 90% of the turnover in the German market.

2. HISTORY AND EVOLUTION OF FRANKFURT AS A FINANCIAL

CENTRE

In 794, when Charlemagne was still King of the Franks, Frankfurt geographical location

in the intersection of several trade routes and Charlemagnes plan to build a canal to

link the river main and the Danube, indicates that the city was a strategic place to

perform trades.



Furthermore, it was the military assembly point and the residence place of the royal

family and many other splendid businesses men. Not only this, but also the city was

appointed as the place where German kings were elected, becoming finally the

political centre of the Reich.As consequence, the city not only got high levels of legal

security and political stability but also privileges to promote economic development.

For example, merchants in Worms were given the privilege not to pay royal tolls in

Frankfurt.

However, the Crusades were one of the greatest events in the history of Frankfurt to

become a relevant trading centre. The Crusades brought European countries into

contact whit the products in the East, and so the international trading gained

importance. But, customs responsibility was a problem for merchants. Taking into

account that all visitors to the annual fair in the city were under special protection not

to pay customs, it was decided to grant customs exemption through the Reich in 1329,

whit the intention of strengthening the position of the Frankfurt merchants.

So being things like that, German merchants learnt the latest techniques of commerce

and how it was financed. In Frankfurt were used bills of exchanges, clearing accounts

and shipping insurances.

In 1585, Frankfurt traders established a system of exchange rates for the various

currencies that were circulating in the city to prevent cheating. It was one of the roots

for the appearing of the Frankfurt stock exchange.

At the beginning of the 16th century there was a high rate of immigration of Dutch and

French merchants which brought and increase in the wholesale commerce and

banking sector in Frankfurt. Monetary transactions were a trouble., the abundance

means of payments as well as the free exchange rates brought swindles. So, in 1585,

merchants met at the fair in order to establish uniform exchange rates.

After the last episode of the World War II (1939-1945) in which the city was seriously

damage, the reconstruction of the city took place in a simple modern style. In 1948,

the Allies founded the Bank DeutscherLander, which later become Deutsche

BundesBank. Following this action more financial institutions were re-established in

Frankfurt (Deutsche Bank and Dresdner Bank).

In that moment, Frankfurt also became again the transportation centre of Germany

whit Frankfurt Airport as the second-busiest airport of Europe. Along whit this, the

creation of the Europe’s most efficient underground transportation systems have been



one of the key terms that further the city to be nowadays an important financial

centre.

In 1998, the European Central Bank was founded in Frankfurt, followed by the

European Insurance and Occupational Pensions Authority and European Systemic Risk

Board in 2011.

3. ECONOMIC RELEVANCE IN REGION’S ECONOMY

Frankfurt is considered a prosperous commercial centre. It unites a mixture of

power between economic sectors, central location, excellent infrastructure, excellent

academic choice and a high quality of life. However, without the financial centre, it

would lack some of the decisive weight you need to earn points when it comes to

international competition between cities.

It is one of the economic powers and also holds a great innovative strength. The

commercial potential for both domestic and foreign participants is based on the high

concentration of successful, future-oriented companies from many industries, which

make the region of Rhine-Main a thriving economic area. A gross domestic product of

more than 50 billion euros is generated annually in Frankfurt (more than 84,000 euros

per wage earner), in more than 34,000 operations.

Moreover, most companies in Frankfurt have access to financial markets through

Deutsche Börse Group (Frankfurt Stock Exchange), one of the largest stock exchanges

in the world. It is a marketplace organizer for the trading of shares and other

securities. It also gives companies and investors access to global capital markets. It also

has the most stable, efficient and economical European clearing and settlement

systems. This allows companies to benefit from a Frankfurt sales network, fully

integrated and internationally.

Moreover, as a banking location, the contrast with other domestic financial centres

demonstrates that Frankfurt does not really have any serious rivals in Germany. A wide

range of indicators shows that Frankfurt is the undisputed frontrunner in the German

financial sector. For example, in terms of the number of banks, Frankfurt is clearly the

number one, Munich and Hamburg with 60 and around 50 banks respectively at the

end of 2011are a long way behind. Berlin, Dusseldorf and the Cologne/Bonn region

counted approximately 30 banks each, Stuttgart around 20. Being things like this, it is

undoubtedly that the high number of companies’ headquarters in Frankfurt together

with the Frankfurt Stock Exchange brings economic richness to the country.



The distribution of the largest banks in Germany across individual cities in terms of their balance sheets totals confirms the pre-eminence of Frankfurt, but also shows another ranking of regional locations: at the end of 2011, fourteen of the top 100 and four of the top 10 banks were headquartered on main.

Frankfurt holds a long tradition, housing the ECB, the Bundesbank, EIOPA,

European Systematic Risk Board and BaFin, and will soon be crucial for the banking

supervision authority for the eurozone. It leads in terms of bank employees. With

almost 74,400 workers in the banking sector, it accounted for close to 11 % of the

685,000 total bank staff in Germany in the middle of 2012. At least another 65,000

jobs are directly and indirectly connected with the financial centre, with a total of over

7,000 companies working in the financial sector in the greater Frankfurt area.



Therefore we could say that the Frankfurt financial centre’s existence is, at least,

relevant.

Moreover, when we talk about how important the financial centre is to the

economic strength and prosperity of the people of the region, we should also take into

account that Banks and trading houses need offices, a high performance IT

infrastructure, specialised computer programmes, transport links across the entire

globe, training for their employees and much more. This leads to an additional

concentration of software developers, data centres, communications and logistics,

providers, brokers and other suppliers.

On top of that, Frankfurt possesses an excellent international level of education

and research, an academic network of finance which is probably the most consolidated

in the world. Companies appreciate the large number of well-trained employees. The

practice orientation of university education is based on a close and permanent

exchange between industry and academia, which is a key factor in the formation of

competitive and well prepared employees.

In the end, one of the most important reasons for Frankfurt’s financial centre’s

success is its stability. Even in moments of crisis, the financial centre has been able to

prove relative strength compared to other financial centres. And not only that, but the

crisis has actually led to a stronger focusing of the banks on their core business.



4. ROLE IN THE MAIN FINANCIAL MARKETS

The City of London, which is Europe's leading financial centre, affects the world

economy every day with her position as a major financial centre of international

business, trade and transactions. Introduction of the single European currency

triggered the rise of Frankfurt as a European city of finance, directly challenging and

threatening proclaimed the preeminent position of London as a leading international

financial centre in Europe.

As for financial markets, Frankfurt plays an important role mainly in three areas:

the stock market, futures market and the insurance sector:

STOCK EXCHANGE MARKET: Is the world's 10th largest stock exchange by market capitalization

FUTURES MARKET: Frankfurt leads the futures market in Europe and occupies the 3th place in the world.

INSURANCE SECTOR: host the "European Insurance and Occupational Pensions Supervisors' (CEIOPS), Frankfurt is also the centre of the stability of the European insurance industry. Therefore, the insurance industry has a great relevance in Frankfurt with about 100 insurance companies.

Furthermore, to see the role that a financial centre in the international financial markets, we must also consider the impact of a financial centre has on the activity of the global capital market. For Frankfurt, the ECB's decisions only fundamentally affect not only the euro area, but also the financial markets around the world. Thus, Frankfurt is internationally important for monetary policy.

Also, the weather has deteriorated a bit as a result of the financial crisis, but not as

much as elsewhere. Frankfurt banks have not had to deal with the dramatic situation

seen in London or Paris. For example, unlike other European financial centres,

Frankfurt has never been a major player in investment banking, which is at the root of

the crisis.



5. FINANCIAL CRISIS: IMPACT AND CONSEQUENCES

The global financial crisis of 2008 that we still confront has waved the entire

financial sector. Due to it, there were several consequences, especially denials, in

Europa's financial centres and the United States. Nevertheless, the traditional financial

centres located in the latter two areas mentioned have managed to maintain their

dominance and to continue providing around three quarters of global financial

services, although with lower levels of market activity in some market segments.

London, New York, Hong Kong and Singapore continue in the top of the classification

of the financial centers all over the world (according to 2013 GFCI), but other financial

centers that arise as Beijing, Seoul or Shangai, have grown loudly and there gain the

compatibility, something that is pressuring the traditional financial centres to maintain

their roles.

It is interesting to point out how the crisis has affected Frankfurt, one of the most

important financial centres in Europe, as well as which measures have been taken to

face this situation.



5.1 FINANCIAL INSTITUTIONS

The banking world is undergoing a profound transformation, caused by the crisis in the financial markets, which has lasted more than five years. As in most financial centres, banks have an important role in the financial centre of Frankfurt; In fact, apart from local banks of more than 150 foreign banks from 40 countries are active in Frankfurt (another 40 representative offices). Due to the financial crisis, banks have faced liquidity problems, but as they need to keep lending money, several measures have been taken: the recapitalization of banks, the purchase of mortgage-related assets, changes strategies of banks, rationalization and so on. In the case of Frankfurt, the German government decided to recapitalize local banks to inject money in equity. However, the emergency capital provided by the government is not enough for the recovery of the banks due to the continuing uncertainty in the markets and the outlook for modest income. Therefore, the banks themselves have felt compelled to change their strategies and implement rationalization. Concentrate on the core areas of the business and refocus on the domestic market are of particular importance in this process of adjustment and engage trim excess capacity. Compared with the situation at the outbreak of the crisis, the German financial system is considered in turn to be more robust, as the Bundesbank Financial Stability Review Along with the sustainability of the euro zone appears to be threatened by other members of the European Union, which are actually affected by the financial crisis (particularly in the periphery of Europe). For example, Greece is experiencing a profound crisis of sovereign debt. Few see how it will escape their debt burden without some restructuring, which could lead to contagion across the eurozone and shake German banks and other financial institutions (insurance companies, for example). German banks had played a role in trying to stabilize the euro area, which contributes to a voluntary cancellation of Greek debt in 2012, for example. But they are still some of the largest creditors of the weaker eurozone nations, which have German tanks enthusiasm recycled developers Spanish loans or purchases of Italian bonds.

Other Frankfurt institutions have also done their homework, or at least try it. That’s the case of

the Frankfurt Stock Exchange, which has tried to merge with the New York Stock Exchange,

creating the world’s largest financial market operator and putting Frankfurt at the heart of a

stock and derivative trading organization that would span the globe. However, European

Union blocked this deal in 2012 because it would have created an unfair, near-monopoly in the

trading European derivatives (complex financial securities in which investors bet on the

fluctuations in the value of such underlying assets as stocks, commodities and currencies).

Due to foreign firms, the Europe-wide and Germany-wide consolidation process of recent

years has not been visible in the financial centre of Frankfurt. Before the crisis, more and more

new institutions moved to Frankfurt, increasing consistently their presence in this financial

centre.



When the crisis reached the German finance centre, the number of banks remained stable.

However, it must be said that a moderate decline occurred: from late 2008 until the end of

2011 the number of banks headquartered in Frankfurt fell 14-215.

In spite of the on-going consolidation process in the financial sector, the number of banks in

Frankfurt increased in 2012 and reached 221 by the end of the year, representing a decrease

of only eight banks since before the worldwide crisis. However, the effect of the crisis has

accentuated Germany’s financial strength in the short term, to the benefit of its banks and

other financial institutions. German banks have captured capital inflows from other parts of

the eurozone, reflecting its haven status, and its government borrowing costs have been

driven to record lows.

5.2 EMPLOYMENT IN FINANCIAL SERVICES

Due to the consolidation of companies, many banks are cutting staff to reduce

costs. However, employment in the financial centre of Frankfurt has been

developing in a different way than in Germany. Employment has always been

bigger in Frankfurt than in the whole country.

It has suffered a steady decline of 13% since the outbreak of the dot-com bubble in

the early millennium throughout Germany, while in Frankfurt is about 8% lower

today.

Moreover, between 2006 and 2008 and in contrast to the rest of Germany,

Frankfurt banks hired more workers (a growth of 5% to about 76,000 jobs). But

with the onset of the financial crisis, employment Frankfurt's banking sector fell by

almost the same amount, to 72,500 in mid-2010.



Then in 2011, they had created nearly 2,000 new jobs in Frankfurt. Since then,

employment in local banks has ranged from about 74,400 to 74,500 employees.

Therefore, in the final analysis, we can say that Frankfurt has so far only lost 2% of

its employees in the banking sector following the global financial market crisis.

In addition, the creation of a unified banking supervision authority controlled by

the European Central Bank (ECB) also means hiring more staff, in a similar way

when the central bank began its work in the late 90s in Frankfurt.

All this shows how well the financial centre of Frankfurt has come through the

crisis, particularly in comparison with other countries. Its importance as a financial

centre and German as a European centre for financial supervision is growing. On

the other side of these opportunities to position itself in the international

competition among financial centres are the risks of over-regulation.

Today, when the crisis is not over yet, Frankfurt still stands out as one of the

world's major financial centres, due to their relationships with other financial

institutions; their diversity in terms of their "wealth" of the business environment

(the amplitude of the industrial sectors that thrive on it) and the depth of its

financial services activities. Although the ranking of the Global Financial Centres

Index1 (published by the Z / Yen Group) Frankfurt was in position 8 before the



crisis, higher than at present, we can say that this financial centre, has maintained

more or less the same position (10a -13thpositions), or recover for example, to

drop 16thposition it had in the September 2011.

6. REFFERENCES

www.frankfurt.de/sixcms/detail.php?id=3403899

Helaba Research: Bank employment in FrankfurT

Global financial centres after the crisis. Deutsche Bank Research

Ludwig Holtfrerich, Carl: “Frankfurt as a Financial Centre: From

Medieval Trade Fair to European Banking Centre” (1999), C.H.Beck.

file:///C:/Users/estimado%20usuario/Downloads/20131108-

Finanzplatzfokus.pdf

www.boerse-

frankfurt.de/en/basics+overview/history/11th+to+17th+century

frankfurt financial centre

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