The impact of financial centers around the world have been delicately examined by a number of studies conducted by global institutions and financial corporations.
A number of studies have put forward that countries ranking in the global financial center index, mostly developed nations, have also seized the benefits of the highest gross domestic product (GDP) and foreign direct investment (FDI) inflow.
Aiming to expand its share from global FDI movements and raising its GDP in line with the 2023 vision, Turkey is due to launch an international financial center in Istanbul soon.
Ahead of the launch, Finance Minister Naci Ağbal emphasized the necessity to institute more liberal regulations for the operational structure of financial institutions in the center.
"We need to introduce more liberal and free-market based regulations for the structure of the institutions that make up the financial system in the Istanbul Financial Center, and state bodies continue to work for the institution of a more liberal financial center," Minister Ağbal said.
He indicated that the ministry initiated a study for an omnibus bill to address regulatory requirements for a free-market based financial center. The minister noted that the government attributes vital importance to the transformation of Istanbul into a global financial center. The public burden and costs that befall the financial markets, Ağbal underscored, must be reduced or eliminated in the framework of the Istanbul Financial Center.
He pointed out the necessity to offer the same or even lower costs for transactions compared to financial centers in Dubai, London and Frankfurt. He said that the Istanbul Financial Center needs to be more competitive because an element of competitiveness is strongly supported by the ease of doing business in a center.
For Istanbul to be a competitive financial center, he said, it must have the same qualities as other globally renowned centers. He said that conditions for market entrances and exits must be eased in addition to the requirement for regulations and instrument diversification.
"There are not only limitations on tax or regulation costs, but also on the diversity of the financial instruments," the finance minister said.
Since the existence of a developed technological infrastructure and strong human resources define the operational strength of financial centers, Ağbal also highlighted the importance of human resources to achieve a globally competitive financial center.
"To develop financial markets in a country, an educated human resources [management] is necessary, and the ministry is working to coordinate the human resources for the financial market. We have compiled data from the Undersecretariat of Treasury, the Banking Regulation and Supervision Authority, the Development Ministry, the Capital Markets Board and Borsa Istanbul," he added.
The minister said that following the evaluations they carried out with Deputy Prime Minister Mehmet Şimşek, they agreed that institutions with an active role in financial markets should suggest more radical arrangements to increase the diversity of financial instruments based on a free market economy and facilitate entry and exit to the market.
Ağbal announced that they would soon hold an evaluation meeting in this direction.
"Here it said that our regulations are in line with European Union regulations. We do not claim compliance with EU regulations. We need to look at our compliance with the regulations that will put us in competition," he added. "Otherwise, compliance with EU regulations alone does not make us competitive. There is a need for a change in the perspective, especially in the context of our financial institutions."
The minister also said that there are a number of good suggestions on the subject, pointing to a series of ideas that will enable financial instruments to be traded at a lower cost in this market.
Impact of financial centers on the economy
Research by global institutions and scholars typically argue that a developed, well-functioning financial system is a key determinant of economic growth. A look at the latest Global Financial Center Index (September, 2017) indicates that the 20 countries with the highest ranking - including London, Frankfurt, Beijing, Montreal and Zurich - are also the most developed and fastest emerging markets.
A report prepared by the Foundation of Political, Economic and Social Research (SETA) outlines that the ranking of the global financial centers confirms that the development level of high-ranking financial centers are positively reflected in the macroeconomic indicators of the countries where these centers operate.
For instance, the report exemplifies some of the financial centers with high ranking, such as San Francisco, New York, Los Angeles and Boston, located in the U.S., the world's largest economy.
Moreover, the Shanghai, Beijing, Hong Kong financial centers operate in the world's second largest economy, China. Thus, the report shows that to institute a global financial center poses more significance considering Turkey's economic goals.
The SETA report also emphasizes that Turkey wants to institutionalize its gains from the FDI and capital movements, which have risen considerably in the country over the last 15 years by drawing more than $180 billion of FDI.
Accordingly, the report claims that the Istanbul Financial Center, which will render short-term capital flows into long term, will have a key role in resolving structural problems in the Turkish economy.
A study prepared by World Bank experts "The Effects of Financial Development on Foreign Direct Investment (2014)," claims that financial centers establish a healthy environment for economic growth and eliminate financial volatility.
"More financial centers bring better financial investment opportunities, which help the centers to attract financial resources. Higher foreign capital, especially in the form of FDI, helps countries to increase their production capacity in goods and services sectors," the report emphasizes, drawing attention to the power of financial centers to attract more greenfield FDI investments by creating a stable environment for financing projects.
Greater financial development also promotes overall economic activity, notably in financially vulnerable sectors, the study finds and adds that local companies can benefit from having better access to financial resources and increase their leverage by using different financial instruments.
