The emerging financial system will sharply differ from earlier versions, which were strings of closed domestic markets with a few scattered global centers such as the offshore markets and Swiss international banking. Traditionally, each national center duplicated all financial functions for its own economy, and collaboration between national markets was crude and rare. Today, however, cooperation is on the rise. Leading financial services firms are now setting up operations across the globe while traditional national centers are becoming home to foreign firms with global operations. Leading cities like London and New York are executing complex operations for firms and governments from myriad countries, packaging capital in innovative ways while working with secondary cities through affiliates and direct exports of financial services. In contrast, other cities in the global network are playing "gateway" roles, such as monitoring capital flows or issuing bonds. One example is Argentina's $1 billion government bond in November, the largest emerging market bond since the market turmoil last August. Although the bond was issued in Argentina, its lead managers were J. P. Morgan and Germany's Deutsche Bank and most of its buyers were U.S. institutional investors.
What turns an ordinary city into a global financial center? Although many factors can boost a city's status, two elements stand out. The first is national consolidation, which favors cities with major institutional equity holdings. In the past, a nation's financial activity was often scattered among several major cities; today, most countries have one dominant national center of operations. Today, a city lacking a major stock exchange can participate in the global market if it has banks and investment houses holding significant amounts of equity. Second, new financial capitals have appeared in emerging markets that have taken the plunge into market liberalization -- a trend that will continue despite the current financial turmoil.