World Financial Hubs- Corona Virus Outbreak

The COVID 19 is a global health crisis that has translated into an economic crisis in the world. The following cities listed below are considered the financial centres of the world for various roles they play in world finance. Some are the financial hubs because of strategic locations, stock exchange leadership, leading institution homes, concentration of organisational infrastructures such as banks, insurance companies etc. To understand the world financial template it is necessary to understand why the city is known worldwide and how the country is managing its Monetary and Macro financial policy as per the Policy Tracker released by the IMF.

LONDON

Why is London famous in world finance?

• Trade and Business centre
• Foreign exchange and bond trading- home to the largest stock exchange in Europe, London Stock Exchange
• Banking activities and Insurance services
• Bank of England- second oldest central bank in the world
• London Bullion Market Association (LBMA)- world's largest location for gold and silver wholesale trading.

UK Monetary and Macro Financial Policy Tracker

• reducing Bank Rate by 65 basis points to 0.1 percent;
• expanding the central bank’s holding of UK government bonds and non-financial corporate bonds by ￡200 billion;
• introducing a new Term Funding Scheme to reinforce the transmission of the rate cut, with additional incentives for lending to the real economy, and especially SMEs;
• launching the joint HM Treasury—Bank of England Covid Corporate Financing Facility which, together with the Coronavirus Business Loans Interruption Scheme, makes ￡330bn of loans and guarantees available to businesses (15 percent of GDP);
• activating a Contingent Term Repo Facility to complement the Bank’s existing sterling liquidity facilities;
• together with central banks from Canada, Japan, Euro Area, U.S., and Switzerland, further enhancing the provision of liquidity via the standing US dollar liquidity swap line arrangements; and
• reducing the UK countercyclical buffer rate to 0 percent from a pre-existing path toward 2 percent by December 2020, with guidance that it will remain there for at least 12 months. The Prudential Regulatory Authority (PRA) set out supervisory expectation that banks should not increase dividends or other distributions, such as bonuses, in response to policy actions. 

SINGAPORE

Why is Singapore famous in world finance?

• Economic and Political Stability- transparent and sound legal framework
•  Deep capital markets 
• Leading insurance and wealth management sector
• Named as one of The Four Asian Tigers- high-growth economies, fuelled by exports and rapid industrialisation
• Singapore is both diversified and specialised across industries such as chemicals, biomedical sciences, petroleum refining, mechanical engineering, and electronics.

Singapore Monetary and Macro Financial Policy Tracker

• The Monetary Authority of Singapore (MAS) welcomed the announcements from banks and insurers in Singapore to support their customers facing financial difficulties, while adhering to prudent risk assessments. The support announced by banks include moratoriums on repayments for affected corporate and individual customers, extension of payment terms for trade finance facilities, and additional financing for working capital. 
• The MAS announced the establishment of a US$60 billion swap facility with the US Federal Reserve. The MAS intends to draw on this swap facility to provide USD liquidity to financial institutions in Singapore. 
• The MAS announced that the six-monthly monetary policy statement will be issued on March 30. This is slightly earlier than the usual timing of mid-April. 
• The MAS announced that the first auction under the US$60 billion MAS USD Facility with the Federal Reserve will be conducted on March 27, 2020, where US$10 billion in 7-day funds will be offered. MAS will conduct another two auctions on March 30, where US$12 billion in 7-day funds and US$8 billion in 84-day funds will be offered. After this, regular weekly auctions will be conducted every Monday.

ZURICH

Why is Zurich famous in world finance?

• Largest city in Switzerland- robust business environment and offers many finance sector jobs
• Disproportionately large presence of financial institutions and banks
• Hub for insurance and asset management companies 
• Good investment destination- low tax regime
• The SIX Swiss Exchange- Switzerland’s primary stock exchange, 10th largest in the world

Switzerland Monetary and Macro Financial Policy Tracker

• To address liquidity bottlenecks, the FC on March 18 ordered a debt enforcement standstill from March 19 to April 4. The Swiss National Bank activated the U.S. dollar liquidity swap line with the Federal Reserve, lowered the interest rate, offered a new 84-day maturity, and increased the frequency of the 7-day maturity operations from weekly to daily. As of March 24, USD liquidity injected via auctions totaled USD3.6 billion.
• In addition, the SNB announced on March 19 that starting April 1, the threshold factor for exempting sight deposits from negative interest rates would be raised from 25 to 30. On March 25, the SNB introduced a new COVID-19 refinancing facility. The facility operates in conjunction with the federal government’s guarantees for corporate loans. It allows banks to obtain liquidity from the SNB, which is secured by the federally guaranteed loans.
• The SNB also requested deactivation of the countercyclical capital buffer. On the supervisory front, the Swiss Financial Market Supervisory Authority introduced a  temporary exclusion of central bank reserves from the calculation of banks’ leverage ratio, releasing capital buffers to support liquidity provision.
• The SNB has increased its interventions in the FX market to limit appreciation of the Swiss franc. The total size of interventions, proxied by the change in sight deposits held at the SNB, was around CHF20 billion (or 2.9 percent of the 2019 GDP), since early February.

NEW YORK

Why is New York famous in world finance?

• Finance capital of the world
• Home to Wall Street
• NYSE -the largest stock exchange by market capitalisation 
• Host to some of the largest and finest companies (Fortune 500 and Fortune 1000)
• Biggest banks (Goldman Sachs, Morgan Stanley, and Merrill Lynch, JP Morgan)

USA Monetary and Macro Financial Policy Tracker

• Federal funds rate lowered by 150bp to 0-0.25bp. Purchase of Treasury and agency securities in the amount as needed. Expanded overnight and term repos. Lowered cost of discount window lending. Reduced existing cost of swap lines with major central banks and extended the maturity of FX operations; broadened U.S. dollar swap lines to more central banks. 
• Federal Reserve also introduced facilities to support the flow of credit, in some cases backed by resources from the Exchange Stabilization Fund. The facilities are: (i) Commercial Paper Funding Facility to facilitate the issuance of commercial paper by companies and municipal issuers; (ii) Primary Dealer Credit Facility to provide financing to primary dealers collateralized by a wide range of investment grade securities; (iii) Money Market Mutual Fund Liquidity Facility to provide loans to depository institutions to purchase assets from prime money market funds (covering highly rated asset backed commercial paper and municipal debt); (iv) Primary Market Corporate Credit Facility to purchase new bonds and loans from companies; (v) Secondary Market Corporate Credit Facility to provide liquidity for already-issued corporate bonds; (vi) Term Asset-Backed Securities Loan Facility (TALF) to support the issuance of asset-backed securities backed by student, auto, credit card, and small business loans.
• Regulatory agencies indicated their support for banking organizations that use their capital and liquidity buffers to lend and undertake other actions to provide support to households and businesses. Fannie Mae / Freddie Mac have indicated 60-day suspension of foreclosures / evictions and a plan to reduce/suspend mortgage payments for up to 12 months for those affected by Covid-19.

HONG KONG

Why is Hong Kong famous in world finance?

• Highest concentration of banking institutions in the world.
• Most beneficial legal regulations for both residents and companies-Efficient and transparent judicial and legal system
• Home of many fund management companies
• Largest trading partner in mainland China- Access route to mainland China
• Excellent infrastructure and telecommunication services.
• Favourable tax system- very few and low tax rates 
• Hong Kong Stock Exchange

Hong Kong Monetary and Macro Financial Policy Tracker

• Under the currency board arrangement, the Base Rate was adjusted downward to 1.50 and 0.86 percent on March 4 and March 16, respectively, according to a pre-set formula, following the downward shifts in the target range for the US federal funds rate. The jurisdictional countercyclical capital buffer for Hong Kong SAR was reduced further from 2.0 to 1.0 percent on March 16.
• Key measures to provide financial relief include: (i) the introduction of low-interest loans for SMEs with 100 percent government guarantee; and (ii) other measures by banks to the extent permitted by their risk management principles, including delay of loan payment, extension of loan tenors, and principal moratoriums for affected SMEs, sectors, and

CHICAGO

Why is Chicago famous in world finance?

• Historically famous for derivative market- Chicago Board of Trade (CBOT)
• The Chicago Mercantile Exchange - oldest futures exchange in the world and accounts for more global derivatives trading than all exchanges in Europe and even New York.
• Options Clearing Corporation -clears all U.S. option contracts. 
• Headquarters of over 400 major corporations
• Federal Reserve Bank of Chicago. 

USA Monetary and Macro Financial Policy Tracker

mentioned above

TOKYO

Why is Tokyo famous in world finance?

• Capital of the 3rd largest economy in the world- 3rd largest city in the world in market capitalisation 
• Headquarters of many of the world’s largest investment banks and insurance companies.
• Hub for the country’s telecommunications, electronic, broadcasting, and publishing industries.
• The Japan Exchange Group (JPX) - established by combining the Tokyo Stock Exchange (TSE) Group and the Osaka Securities Exchange.
• The Tokyo Stock Exchange (TSE) -largest in Japan

Japan Monetary and Macro Financial Policy Tracker

• The Government of Japan adopted two emergency response packages (on February 13 and March 10), for a total amount of ￥446 billion (0.1 percent of GDP). The packages included: (i) measures to contain the spread of the virus and enhance preparedness of the healthcare system (around ￥62 billion, or 0.01 percent of GDP); (ii) aid to households (about ￥223 billion, or 0.04 percent of GDP) such as enhanced paid-leave and compensation to working parents affected by the school closure; as well as (iii) measures to mitigate the economic impact (about ￥142 billion, or 0.03 percent of GDP) including subsidies to firms who maintain employment during scale down of operations. The deadline for tax return filing and payment of personal income tax, gift tax, and consumption tax (for the self-employed) was extended from mid-March to mid-April. Tax payments for people and businesses negatively impacted by the COVID-19 outbreak are deferred.
• In addition, the ￥26 trillion (about 4.8 percent of GDP) December 2019 stimulus package is being used to offset the adverse impact of COVID-19 on the economy as well as counter the economic slowdown.
• On March 19, the Government also launched “Intensive Hearing on the COVID-19’s Impact on the Economy,” attended by Prime Minister Abe and other key policymakers.
• To support the international response, the government has pledged ￥15 billion (about US$140 million) as contributions to WHO and other international organizations. Japan has made a contribution of SDR14 million (US$19 million) to the IMF’s Catastrophe Containment and Relief Trust.

FRANKFURT

Why is Frankfurt famous in world finance?

• Home to the European Central Bank
• Home to Deutsche Bundesbank- central bank of Germany 
• Europe's first renminbi payment hub.
• the Frankfurt Stock Exchange - among the world’s largest stock exchanges.

Germany Monetary and Macro Financial Policy Tracker

• The ECB decided to provide monetary policy support through (i) additional asset purchases of €120 billion until end-2020 under the existing program (APP), and (ii) providing temporarily additional auctions of the full-allotment, fixed rate temporary liquidity facility at the deposit facility rate and more favorable terms on existing targeted longer-term refinancing operations (TLTRO-III) starting between June 2020 and June 2021. Further measuresincluded an additional €750 billion asset purchase program of private and public sector securities (Pandemic Emergency Purchase Program, PEPP) until end-2020, an expanded range of eligible assets under the corporate sector purchase program (CSPP), and relaxation of collateral standards for Eurosystem refinancing operations (MROs, LTROs, TLTROs). 
• The ECB Banking Supervision allowed significant institutions to operate temporarily below the Pillar 2 Guidance, the capital conservation buffer, and the liquidity coverage ratio (LCR). In addition, new rules on the composition of capital to meet Pillar 2 Requirement (P2R) were front-loaded to release additional capital. The ECB considers that the appropriate release of the countercyclical buffer by the national macroprudential authorities will enhance its capital relief measures. The ECB Banking Supervision further decided to exercise – on a temporary basis – flexibility in the classification requirements and expectations on loss provisioning for non-performing loans (NPLs) that are covered by public guarantees and COVID-19 related public moratoria; and recommended that banks avoid pro-cyclical assumptions for the determination of loss provisions. Furthermore, the ECB recommends that banks opt for the IFRS9 transitional rules.
• In addition to measures at the euro area level: (i) release of the countercyclical capital buffer for banks from 0.25 percent to zero; (ii) additional €100 billion to refinance expanded short-term liquidity provision to companies through the public development bank KfW, in partnership with commercial banks; and (iii) following the structure of the former Financial Stabilization Fund, €100 billion is allocated within the WSF to directly acquire equity of larger affected companies and strengthen their capital position.

SHANGHAI

Why is Shanghai famous in world finance?

• China’s largest city and the world’s largest city by population.
• The Shanghai Stock Exchange- Mainland China’s most preeminent market for stocks in terms of turnover, tradable market value, total market value and has close to 1,500 listed companies.

China Monetary and Macro Financial Policy Tracker

• The PBC provided monetary policy support and acted to safeguard financial stability. Key measures include: (i) liquidity injection into the banking system, including RMB 3 trillion in the first half of February, (ii) expansion of re-lending and re-discounting facilities by RMB 800 billion to support manufacturers of medical supplies and daily necessities (RMB 300 billion) as well as micro-, small- and medium-sized firms (RMB 300 billion) and the agricultural sector (RMB 100 billion) at low interest rates, (iii) reduction of the 7-day and 14-day reverse repo rates as well as the 1-year medium-term lending facility rate by 10 bps, (iv) targeted RRR cuts by 50-100 bps for banks that meet inclusive financing criteria which benefit smaller firms and an additional 100 bps for eligible joint-stock banks to support private SMEs, and (v) policy banks’ credit extension to micro- and small enterprises (RMB 350 billion).
• The government provided measured forbearance to provide financial relief to affected households, corporates, and regions facing repayment difficulties. Key measures include (i) delay of loan payments and other credit support measures for eligible SMEs and households, (ii) tolerance for higher NPLs for loans by epidemic-hit sectors and SMEs, (iii) flexibility in the implementation of the asset management reform, and (iv) easing of housing policies by local governments.