Ascent of Tokyo Financial Center

8/2/2019 Ascent of Tokyo Financial Center

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The Ascent of Tokyo as an International Financial CenterAuthor(s): Howard Curtis ReedSource: Journal of International Business Studies, Vol. 11, No. 3 (Winter, 1980), pp. 19-35Published by: Palgrave Macmillan JournalsStable URL: http://www.jstor.org/stable/154733

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THEASCENT OF TOKYOAS ANINTERNATIONAL INANCIALCENTERHOWARDCURTISREED*The Universityof Texas at AustinAbstract. This research traces, from 1900 to 1975, the rise of Tokyo to prominence as aninternational financial center in Asia by examining the evolution and development of sev-enteen Asian international financial centers. Cluster analysis is used to show the hierar-chical structure of the international centers, over time. Stepwise multiple discriminantanalysis is then used to verify the cluster analysis groupings, determine what factorscaused the particular groupings, and rank the centers. The findings show clearly thatTokyo became Asia's preeminent "banking"center in 1960 and the preeminent "financial"center in 1965, but these results are at odds with the commonly held view that Singaporeand Hong Kong are the region's top centers; in fact, Asia's second most prominent centeris Osaka. The future implicationand significance of Tokyo's(andOsaka's) financial leader-ship in Asia is discussed.

* In the years following World War II, the study of international financial cen- INTRODUCTIONters has declined markedly. Commenting on this decline, Kindleberger has notedthat it is a curious fact that the formation of financial centers is no longer studiedin economics.1 He suggests that the reason may be that such study falls betweentwo reasonably distinct areas: (1) urban and regional economics, which concernsitself, primarily, with cities and the location of commerce, industry, and housing;and (2) money and capital market development, which emphasizes building thefinancial infrastructure and its relationship to economic growth and develop-ment. This view is echoed by Cheng,2 who observed that there appears to be noobvious way to apply the factor-endowment approach (developed by Heckscher-Olin) or the distance from center approach (developed by Von Thunen) used in re-gional and urban economics to explain the location of regional financial centers.Studies that have analyzed the roles of money and capital markets in economicdevelopment leave the question of the location of financial centers and the func-tional links between them largely unexplored.Most of the diachronic studies of financial centers have focussed almost ex-clusively on London, the European Continent, and the Mediterranean. FollowingWorld War I, researchers developed an interest in New York, Montreal, and To-ronto. Interest in the study of Asian financial centers appears to coincide withthe development of an Asian currency market in the late 1960s, and these studieshave focussed almost exclusively on Singapore and Hong Kong.3 Tokyo, for ex-ample, is often cited as being relatively unimportant as an international financialcenter because Japan imposes constraints on certain types of internationalcapital transactions.4 The implicit hypothesis which has directed researchers intheir selection of study areas appears to be that complete freedom (from reg-ulatory restrictions) to carry out international transactions within a center'sfinancial markets is the single most important determinant of an internationalfinancial center's growth and location. The weakness of this hypothesis becomesclear when it is applied to New York. If this view is accepted, then New York wasrelatively unimportant as an international financial center between 1963 and 1974when United States capital control restrictions were in force. Such an assertion,if made, would almost certainly be challenged by contemporary researchers be-

*HowardCurtis Reed is Assistant Professor of International Business at The UniversityofTexas at Austin. He received his Ph.D.fromthe Universityof Washington. His publicationsinclude a forthcoming book: The Preeminence of International Financial Centers (Praeger,1981).

Journal of International Business Studies, Winter 1980 19


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cause New York, in their view, throughout this period remained one of the world'spremier centers.The purpose of this research is to contribute to the overall understanding ofAsian international financial centers and to test the hypothesis that Tokyo hasascended to the top of the Asian hierarchy of international financial centers. Toachieve this objective, three questions will be posed. First, are Singapore andHong Kong the two most important international financial centers is Asia? Sec-ond, what has been, historically, the organizational structure, distribution, and in-fluence of Asian international financial centers? Third, what impact have suchfactors as geography, communications, inflation, war, trade, capital flows, andinvestments had on the evolution and development of Asian international finan-cial centers?The following analysis is comparative, historical, qualitative, and quantitativeand extends to 17 cities in 10 countries and covers a period of 76 years(1900-1975). First, the literature concerning international financial center defini-tion, function, location, organization, and purpose is reviewed. Next, the researchdesign and variable selection is discussed followed by the findings and an as-sessment of the implications of these data.

THEORYFinancial Centers

InternationalFinancial Centers

Financial centers are traditionally thought of as central places where financialtransactions are cleared and coordinated. The efficiencies of a centralized loca-tion are thought to stem from the economies-of-scale of such functions as (1)quick and easy access to the knowledge and services of complementary andcompetitive institutions; (2) clearing and exchange process for checks, drafts,and stock certificates; (3) availability of larger and cheaper amounts of capital forborrowers and greater liquidity for lenders; and (4) personal expertise of those ex-perienced in international management matters. The attributes of financial cen-ters are summarized lucidly by Kindleberger:5Financial centers are needed not only to balance through time the savings and in-vestments of individual entrepreneurs and to transfer financial capital from saversto investors, but also to effect payments and to transfer savings between places.Banking and financial centers performa medium of exchange function and an inter-spatial store-of-value function. Single payments between separate points in a coun-try are made most efficiently througha center, and both seasonal and long-runsur-pluses and deficits of financial savings are best matched in a center. Furthermore,the specialized functions of international payments and foreign lending or borrow-ing are typically best performed at one central place that is also [inmost instances]the specialized center for domestic interregional payments.

Present theory suggests that the same factors which generate the developmentof national financial centers will eventually make these locations internationalfinancial centers. The speed of international development and the level of inter-national activity are apparently dependent on how readily national financial cen-ters broaden and refine their financial infrastructure. Within this context, itfollows that international financial centers evolve from and are mere extensionsof national financial centers.A survey of the literature reveals that there are substantive, as well as trivial, dif-ferences in international financial center definition, structure, and prerequisitesfor growth and development.Dufey and Giddy see a financial center as a metropolitan center with a high con-centration of financial institutions which clear financial transactions for a coun-try and/or region. In their view, an international financial center develops as anextension of domestic centers; and "those domestic centers offering the greatestconvenience in terms of international communications, geographic locations, fi-

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nancial services, and so on, become the recognized international financial cen-ters.. .the most important being London and New York."6According to Nadler, an international financial center is a city which acts as aclearinghouse for a large volume and variety of international financial transac-tions. Normally"itacts as a bank for the entire world,and the services it rendersfacilitate the flow of goods, services, and capital among nations."7 In Nadler'sopinion, New York and London towered above all other international financialcenters such as Amsterdam, Paris, and Zurich.Wasserman distinguishes between international financial centers and world fi-nancial centers. His description of an international financial center largely mir-rors Nadler's. International financial centers have "developed throughout theworld to accommodate the flow of goods, services, and securities among na-tions." Cities like Paris, Amsterdam, Zurich,and Tokyo are cited as examples. Aworld financial center is distinctive from an international financial center" inthe sense that the facilities which they offer are far more extensive than thoseelsewhere."8 On this basis, Wasserman recognizes only two world financialcenters - New York and London.According to Kindleberger,an international financial center is a center that pos-sesses "thehighly specialized functions of lending abroad and serving as a clear-inghouse for payments among countries. Banks, brokers, security dealers, andthe like establish branches in such centers."9Kindlebergerargues that there arecertain economies inherent in the organization of financial markets, that thebanking machinery produces a single dominant financial center within a country,and that these same forces continue workingto produce a single worldwidecen-ter. This thesis has led him to designate London as the worldwide center duringmost of the nineteenth century. In the twentieth century, this center shifted toNew York and is now shifting again from New York to the Eurodollarmarket,which is spread all over the world.The literaturereviewed thus far appears to agree that a hierarchy among interna-tional financial centers does exist. Kindleberger'ssingle center at the top thesisis challenged, indirectlyat least, by those who place both London and New Yorkat the top. The hierarchical thesis looks primarily o economies-of-scales for itsjustification. The desire to minimize time differences and costs (that is, capital,communications, transport, and the like), to increase liquidity through broadermarkets, and to do away with certain subjective evaluations such as unfamiliarityand other cultural factors is at the core of this argument.Leadingtheorists' perceptions of the formationof international financial centers,like their definitions and views of structure, differ in the degree to which they em-phasize certain factors. Nadler and Kindleberger,and to a lesser extent Wasser-man carefully spell out the prerequisites for becoming an international financialcenter.Nadler isolates seven factors essential to the development of an international fi-nancial center.10First, the country's currency system must be stable and sound.Second, there must be a substantial and constant demand for and supply of thecountry's currency. Third,the balance of payments accounts should be reason-ably well-adjusted over a period of time to avoid sudden shifts in the supply anddemand of the country's currency. Fourth,the center must be the seat of domes-tic financial institutions capable of handling the business transacted in such acenter. Fifth, the center must be the domicile of agencies or branches of foreignfinancial institutions which can perform their normal functions without beinghampered by legal restrictions or discrimination. Sixth, there must be specializedinstitutions which supplement the commercial banking system in foreign finan-cial transactions. And seventh, the center usually is the domicile of the principaloffice of the nation's central bank.Wasserman largelyagrees with Nadler's list ofprerequisites.



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Kindleberger places considerable importance on the number, size, and interna-tional experience and expertise of the center's banks.11In his view, banks wereinitiallyestablished to serve the needs of sovereigns and nobles; as broadercom-merce developed, banks began to evolve. They became less personally involvedwith governmental finance and more involved with transport-including ship-ping, canals, turnpikes, and railroads- and industry.Finally,they developed theirrole as intermediaries in insurance, mortgages, consumer finance, factoring,pension funds, and the like. The borrowingand lending patternstarts locally andextends to a national center, with perhaps intermediate regional stops, and fi-nally becomes international. As a hierarchicalbanking marketdevelops, special-ization in instruments and functions increases. As this evolution takes place,several other activities must accompany the process. First, savings must be ac-quiredso that dealers can make a market,lend when the rest of the marketis bor-rowing, and sell out of inventory when the rest of the market is buying. Thus,financial centers are needed not only to balance the savings and investments ofindividualentrepreneurs through time and to transfer financial capital from sav-ers to investors, but also to effect payments and to transfer savings betweenplaces. Second, face-to-face contact between bankers, lawyers, security dealers,borrowers, and lenders must be established in orderto minimize the uncertaintythat generally accompanies transactions that take place by telephone, telex, andthe mails. Finally, a well-developed transport system which provides relativelyeasy access to the center's services must be developed.

RegionalFinancial Centers Most of the literature is quite ambiguous in distinguishing between differenttypes of financial centers. Cheng, for example, uses international financial cen-ter and regional financial center interchangeably. HarryJohnson, on the otherhand, attempts to distinguish clearly between the two types of centers. Accord-ing to Johnson, an international financial center is a city in which financial ac-tivities, banking, insurance, and ancillary types of financial requirements, areconcentrated, and these activities must embrace the world or a substantial partof it.12He cites New Yorkand Londonas examples of international financial cen-ters and designates Paris, Hamburg,and Zurich as lesser centers. Johnson doesnot clearly define regional financial centers, but instead describes them as fol-lows:Regional inancial enters,such as HongKong,Singapore, ndPanama,derive heirrole primarilyfrom a combination of geographical proximity to the countries inwhichthe customersoperateand the safetyand ease of operationof subsidiaries,branches,andagencies of foreignbankswhose head office lies inthe internationalfinancialcenters, rather han in generatingcustomersin otherpartsof the regionthroughheirown national ize and internationalowerand thecompetenceof theirown national banks in international financial business. In other words, they arelargely hosts to foreign financial institutions that find it convenient to locate offices

there ratherthan magnets of financial power in theirown right, attracting foreign fi-nancial enterprises to establish subsidiaries in orderto obtain a piece of the action.The formation of regional centers of finance, according to Kindleberger, s the re-sult of diseconomies that work against centralization and favor regionalcenters.13 The primarydiseconomy is the cost of information, which gives localinstitutions an advantage indealing with the region's nonmultinational firms. Un-familiarity with local personalities and the intricate business culture may dis-courage other centers from participating, on large scale, in the local markets. Asecond diseconomy cited by Kindlebergeris difference in time between centers.His example was: the time factor has supported the growth of North Americancenters as against Europeancenters, the Eurocurrencycenters as against NewYork,and the North American West Coast centers as against Toronto-Montrealand New York.He notes furtherthat time is importantbecause direct communi-cation by telephone or telex must be simultaneous; when it spans many time



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zones, it involves a dislocation of the working day for at least one party.Anaddi-tional cost under these circumstances is the loss of information that is obtain-able only with face-to-face contact. A thirdfactor is discrimination. Governmentsand private institutions (and persons) are likely to favor their compatriots overforeigners, even at the expense of higher cost or lower profit.These factors alone appear to justify clearly the study of regional financial cen-ters in Asia or in any area of the world. The study of Tokyo's status (over time)within the regional hierarchyof Asian internationalfinancial centers is of particu-lar importance because Asians (principallyEast and Southeast Asians), more sothan Africans or Latin Americans, have shared a common sense of destiny formore than a century. Their regional fraternalism evolved primarilyfrom the im-pact of Western colonialism (before World War II)and the cold war (afterWorldWarII)on the region's culture, economics, and politics. The Japanese reignof ter-rorthroughout the region (1931-1945) continues to weigh heavilyagainst unquali-fied acceptance of Japanese economic leadership. Japanese political leadershipfor the region is, at the present time, out of the question. The 1970s, however,sawthe Japanese move to the forefront and assume leadership in providing capital(real and financial) to most of Asia.14Historydoes not record a single instance in which a nation the size of Japan hasexercised economic and financial leadership while eschewing political leader-ship for any extended period of time. I can see no reason why the Japaneseshould (orwill) be the exception. Inthe words of Hellmann:15This is not to imply,however,hat thefuturewillsimplybeanextensionof thepast,devoidof change.Therearestrongincentives orJapanto participate ully n inter-nationalpolitics,especiallyinthe Asianregion.Japan s geographically,ulturally,acially, ndhistorically artof Asia.Thistruismneeds restatementbecauseshortshrift s givento thespecial importancef AsiatoJapanin manydiscussions of the contemporarycene whichemphasize he 'mod-ernizing' ffects of prosperity ndthe strongties whichhaveconcomitantly rownbetweenTokyoand the distant butadvancednationsinEurope nd NorthAmerica.

Theburden f historyalonetiltsJapan's nternationalerspective harply nthedi-rectionof the neighboring egion.Fromhe warwithChina n1894-1895untildefeatin1945,Japanwas continuously ngagedinfar-reachingmilitary, olitical,and eco-nomic activitiesin NortheastAsia. Herpositionas a greatpowerand her relationswiththe othergreatpowerswere definedintermsof herpoliciesandcapacitiesinthis area.That s, Japan'sstatus intheglobalsystemwas a functionof herpositionin the region,not the reverse.SinceJapan emergedas a modernnation-state,hecountry'sdiplomatic deals have been most fullydefinedintermsof relationswiththe region,especially nthevagueandromantic onceptof Pan-Asianism.nviewofthe mutedand inchoateaims pursued ince 1945,this Asian-orientedationalismconstitutes the onlyfully-developednternationalmissionin Modern apanesehis-tory.The primarypurpose of this brief review of literature is to point out areas ofagreement and disagreement over definition, organizational structure, and fac-tors influencing the growth and development of international financial centers,and also, to point out why it is importantto study regional groupings of interna-tional financial centers. And finally, to show why it is important to study Asianinternational financial centers-which goes beyond financial and economic rea-sons to include issues that pertain to the region's political economy. No doubt,there are a number of ways to define international financial centers. Organiza-tional structures of these centers are subject to varying interpretations, and thefactors influencing the formation and growthof these centers are many and com-plex. Inorder to make a contribution beyond what has already been done, an at-tempt is made to analyze the large body of variables (hypotheses and theoriessuggested by the literature)simultaneously, in an attempt to determine which arethe most significant. Consequently, the following methodology was chosen withthis primaryconsideration in mind.



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METHODOLOGYResearch Design

VariablesIncluded

This research will focus primarilyon 17 Asian international financial centers. The17 centers are: Bangkok, Bombay, Calcutta, Canton, Hong Kong, Jakarta, Kobe,Kuala Lumpur,Manila, Osaka, Rangoon, Seoul, Shanghai, Singapore, Tientsin,Tokyo, and Yokohama. These 17 cities (or city-states) are included in the study onthe basis of their reputations as international financial centers among knowl-edgeable groups such as economists, historians, political scientists, bankers,and businessmen. An examined city's reputation for international financial im-portance may be historical, current, or both.16The study covers 76 years (1900-1975), and the basic testing interval is 5 years(exception: the test intervals for the period 1940-1955 are 1940, 1947, and 1955).Hierarchical cluster analysis is used to group (classify) the centers. Stepwisemultiple discriminant analysis is used to: test, statistically, the adequacy of thegroup structure; determine what factors (variables) caused the particular groupstructure; and determine the rank of the centers.

All of the factors identified by the leading scholars (see literaturereview)in thearea as important to the organizational structure (grouping),development, andrank of international financial centers are included as variables whenever thenecessary data are available. Because of the severity of the problems associatedwith data collection, the analysis preparation varies significantly according tothe time frame examined. The study is divided into two analytical stages. Stageone considers the 5 basic banking activity variables which are available in usableform from 1900-1975. Stage two adds in another 4 financial/banking variableswhich are available only from 1955 forward.The variables are listed by stage inTable 1.17These 9 banking and finance variables (Table 1) are assumed to be worthwhilemeasures of international financial center activity because the activities of com-mercial banks are so intimately involved in every aspect of a financial center'soperations. These commerical banks are the principal participants as marketmakers in the foreign exchange markets;they hold deposits and serve as collect-ing and disbursing agents in trade and foreign exchange transactions for domes-tic and foreign correspondents; they supply working and investment capitalloans; their activities in the money markets (that is, bidding for deposits andtrading of other money market instruments) largely determine interest rates inthe money and capital markets; they gather, for their own use and for their cus-tomers, economic and political intelligence; and they providea wide range of ad-visory and management services to individuals, corporations, governments, andother organizations.Privatebanks are also of interest because they were the principalsuppliers of in-ternational capital (to the world) until the latter half of the nineteenth century;therefore, one may assume that large concentrations of these banks influencedrelative rankings among internationalfinancial centers prior o the twentieth cen-tury.The impact of privatebank concentrations on modern hierarchies thereforewarrants investigation.The number and kinds of links between a given center and other internationalcenters also influence that center's international status. The linkages tracked foreach center are those provided by their headquarters banks and by the foreignbanks with offices there. Bank representative offices are also used as indicatorsof links. Because such offices were not documented clearly priorto WorldWar IIand because FFAand FFLdata were not available prior o WorldWarII, t was notpossible to performa 9-variable analysis priorto 1955.The foreign financial assets (FFA)of the center's financial institutions indicatetheir willingness and capacity to lend abroad and to finance the trade activitiesof foreigners. Foreign financial liabilities (FFL),on the other hand, are an indica-



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TABLE 1Variable Measures

AcronymStage 1: Banking VariablesLBHDQ Local Bank Headquarters: Large internationallyactive commercial banksheadquartered in the international financial center.LBDIL Local Bank Direct Links: Foreign international financial centers withdirect links to the international financial center through the large interna-tionally active local banks headquartered in the international financialcenter.

PB Private Bank: Private(merchant or investment) banks with an office inthe internationalfinancial center.FBO Foreign Bank Office: Large internationallyactive foreign commercialbanks with an office in the international financial center.FBDIL Foreign Bank Direct Links: Foreign internationalfinancial centers withdirect links to the internationalfinancial center through the large interna-tionally active foreign banks with an office in the financial internationalcenter.Stage 2: Financial/Banking VariablesFFA Foreign Financial Assets: The total amount of foreign financial assets ofthe international financial center (allocated on the basis of the totalassets of the center's LBHDQs).FFL Foreign Financial Liabilities: The total amount of foreign financialliabilities held in the international financial center (allocated on the basisof the total liabilities of the center's LBHDQs).LBR/DIL Local Bank Representative/Branch Direct Links: Foreign internationalfi-nancial centers with direct links (that is, branches and representativeoffices) to the international financial center through local banks (head-quartered there).FB/RO Foreign Bank Representative Office: Large internationallyactive foreigncommercial banks with branches or representative offices in the interna-tional financial center.SOURCES: 1) Rand McNallyInternationalBankers Directory, Chicago; (2) The Banker'sAlmanac and Year Book, London;(3) Moody's Bank and Finance Manual,NewYork;and (4) International Financial Statistics, IMF-Washington.tion of foreign confidence in the center's institutions and the economic and polit-ical stability of the country. These liabilities also indicate a willingness on thepart of the institutions and the monetary authorities to accept foreign funds.The classification, testing, and ranking of centers using only banking variablesyields an analysis of international banking centers. When the same procedure isemployed using a combination of banking and financial variables, an analysis ofinternational financial centers results.

A number of important measures of domestic financial center activity can be Variables Excludeduseful, in my opinion, as international financial center measures only if each vari-able's international content can be ascertained. In some cases, internationalcontent can be identified for certain variables, but not for a sufficiently largenumber of international financial centers and not over a useful period of time. Ifthe international content is not discernible and/or the time frame is not compar-able, these variables then lack the clarity, consistency, and comparability re-quired for solid analysis.The aggregated value amount of bank deposits (and/or assets) is an important



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measure of a domestic financial center's market size and power even when inter-national content is unknown, but it does not represent international influenceand power.This value amount, in manyways, represents the center's potential tobecome a participant in internationalactivities. Just how active the center will orcan become in the international arena is to a large extent dependent upon theoverall character of its banking activities. Whether a domestic financial center'sresources will be employed internationally-and to what degree-depends onsuch factors as sources of deposits, requirements of that local community, rateof return,bank strategy, bank expertise, political considerations, and regulatoryrequirements;for example, even though San Francisco has been an importantin-ternational financial center for nearly a hundred years, historically, the threelarge banks (Bankof America,Wells Fargo, and CrockerNational) have not beenparticularlyinterested in international business.18To cite another example: the three large West German banks-Deutsche,Dresdner,and Commerzbank-did not begin to establish extensive foreign officenetworks until the early 1970s, even though they were (and had been for sometime) three of the largest banks in the world in terms of assets. Although theseand other slow to expand domestic banks (and centers) are certainly of interna-tional significance, it is clear that using aggregated bank deposit or asset dataas a measure of international financial centers, when internationalcontent is notspecifically known, would produce skewed results. A similar argument can bemade against the use of aggregated data for bank clearings, insurance assets,volume of insurance underwritten,trust assets, new security issues (debt andequity),and the number and volume of securities traded on organized exchanges.Inorderto be considered a full-fledged international financial center, a candidatemust have an international attitude and focus, as well as the capacity to providethe requiredfinancial and ancillary products and services. Capacity is an integralpart of each variable used to measure international financial centers if one ac-cepts the premise that only those financial centers capable of supporting an in-ternational financial infrastructure and extensive foreign office networks will doso. If this is the case, then the variables used in this study reflect the interna-tional financial importance of the 17 cities included in this study.

ANALYSIS There are fourtimes between 1900 and 1975 inwhich the organizational structureInternational and rankchanged significantly-1925, 1940, 1947, and 1960. The organizationalBankingCenters structures for the four time periods, and for 1900 and 1975, are shown in Table 2.(1900-1975) The rankings are given in Table 3.In1900, the organizational structure was determined by LBDIL,PB,and FBO.Thelocal bank links clearly distinguish (statistically significant group separation atthe .01 level) Hong Kong from the other four groups of centers; local bank linksalso clearly distinguish the Shanghai, Yokohama, Tientsin group from groups 3,4, and 5. Groups 3 and 4, and 3 and 5 are not clearly distinguished until privatebanks enter the discriminant analysis on step two, and groups 4 and 5 requiretheaddition of foreign bankingoffices before they attain statistically significant sep-aration. The principaldeterminants of rank are FBO, LBDIL, nd FBDIL.The per-centage contribution to the discriminant function of each determinant is 37, 32,and 24 percent, respectively.Between 1920 and 1925, the organizational structure and rank changed signifi-cantly. Yokohama not only joins Hong Kongat the apex of the hierarchy,but it isalso the region's top-ranked center. The structure and rank are determined byLBDIL nd FBDIL.The organizational structure and rankchanged again in 1940,due mainly to the war in Europeand the Germanoccupation of Holland which ledto a change in headquarters location for two Dutch banks. The Nederlandsch In-dische Handesbank and the Nederlandsche Handel Maatchappij bank moved



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TABLE 2The Organizational Structure of Asian International Banking Centers*

1900 (5 Groups)Gp. 1 Hong Kong2 Shanghai, Yokohama,Tientsin

**3 Bombay, Calcutta**4 Singapore, Jakarta, Rangoon, Manila,Bangkok1925 (5 Groups)Gp. 1 Yokohama, Hong Kong2 Shanghai, Tientsin3 Tokyo, Osaka**4 Bombay, Kobe, Calcutta, Canton, Singapore, Jakarta1940 (3 Groups)Gp. 1 Jakarta,Tokyo, Hong Kong, Yokohama,Shanghai, Singapore, Osaka**2 Bombay, Calcutta1947 (4 Groups)Gp. 1 Hong Kong, Shanghai

**2 Bombay, Calcutta**3 Singapore, Bangkok, Rangoon, Manila, Jakarta, Tokyo,Tientsin, Kuala Lum-pur, Canton1960 (5 Groups)Gp. 1 Tokyo2 Hong Kong**3 Osaka, Kobe, Yokohama**4 Singapore, Bombay, Jakarta, Kuala Lumpur,Manila, Calcutta, Bangkok,Rangoon1975 (3 Groups)Gp. 1 Tokyo2 Hong Kong, Singapore, Jakarta, Manila,Kuala Lumpur

* (a) Centers are listed according to their rankorder.(b) Centers in the last group are not shown.(c) The group structure (3 groups, 4 groups, etc.) chosen for each time period is thegroup structure that precedes the largest statistical error increase as the numbergroupsare reduced to the next hierarchical cluster level.** Host InternationalBanking or Financial Centers. Host centers are distinguished fromInternational Financial Centers by the cluster analysis,on the basis of the activity of thelarge internationallyactive banks headquartered in the center. These centers are hosts toforeign financial institutions that find it convenient to locate offices there in order to par-ticipate in the "host" center's activities. They are generally not headquarters locations forlarge internationallyactive banks.

their headquarters in 1940 from Amsterdam to Jakarta. The organizational struc-ture and rank in 1940 were determined by LBHDQ and LBDIL.The victory for the allied forces in 1944 and 1945 brought about the demise ofJakarta's temporary prominence in international banking because the two Dutchbanks returned their headquarters to Amsterdam. The defeat of Japan reducedits previously important centers to nothing more than minor host centers. The de-terminants of organizational structure and rank in 1947 are PB, LBDIL, andFBDIL.In 1960, the organizational structure and rank are determined by LBDIL andLBHDQ; however, FBO has to enter the analysis before significant (statistical)separation is attained between the bottom three groups of centers. In 1975, theorganizational structure is more hierarchical (3-group), as it was in 1940; and,



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TABLE 3Rankings of Asian International Banking Centers*

1900RankCenter Score

Hong Kong 100Shanghai 89Yokohama 85Tientsin 81

1947

Center RankScore


Yokohama 100Hong Kong 99Shanghai 96Tientsin 90Tokyo 90Osaka 88

1960

Center RankScore


Jakarta 100Tokyo 99Hong Kong 98Yokohama 97Shanghai 95Singapore 94Osaka 851975

Center RankScore100 Tokyo99 Hong KongOsaka

100 Tokyo92 Osaka85 Hong KongSingaporeKobe*The rank score is calculated from the discriminant function. The data (independentvariables) are standardized, and the minus signs of the standardized discriminant coeffi-cients are ignored. The minus signs are ignored because it is presumed that a high scoreon all independent variables is a positive factor in being highly ranked. After calculation,the highest ranked center is scored 100, and the remaining centers are scaled accordingly.

also as in 1940, the structure and rank are determined foremost by LBHDQ;however, significant separation between groups 2 and 3 is not attained until PBenters the analysis on step two.

InternationalFinancial Centers(1955-1975)

Home NationInfluence onStructure andRank

Between 1955 and 1975, there is only one time in which organizational structureand rank changed significantly; that is, 1965. The organizational structure andrank for 1955, 1965, and 1975 are given in Table 4.In 1955, structure and rank are determined primarily by LBDIL and LBHDQ;however, FFA and FBDIL are also significant determinants of organizationalstructure. FFA enters the analysis on step three (after LBHDQ) to provide signifi-cant separation between groups 3 and 5. FBDIL enters the analysis on step foutto povide significant separation between groups 4 and 5 and thereby providesstatistically significant (at .01 level) separation among all groups. In 1965, thestructure and rank are determined by LBDILand FBDIL;and in 1975, the structureis determined entirely by LBHDQ. The rank, however, requires a combination ofLBHDQ, the largest variable contributor to the discriminant function with 49 per-cent, and FFL, a 13 percent contributor.

There appears to be a clear and direct relationship between the infrastructuredevelopment in finance and communications. One measure of the level of eachcenter's communications infrastructure is its use of international telex facilities.These facilities are used to the exclusion of nearly all other communications


Hong KongShanghai 10084848379


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TABLE4Organizational Structure and Rank of Asian International Financial Centers

Organizationaltructure11955(5Groups) 1965(4Groups) 1975 3 Groups)Gp. 1 HongKong Gp. 1 Tokyo Gp. 1 Tokyo2 Tokyo,Osaka 2 Hong Kong,Osaka 2 Osaka,**3 Singapore, Bombay, **3 Kobe, Singapore, Hong Kong,Calcutta Bombay,Yokohama, Singapore**4 Bangkok,Rangoon, KualaLumpur,Manila,Manila,Kobe, Calcutta,BangkokYokohama, hanghai,Jakarta,KualaLumpur RankScore2

1955 1965 1975Center Score Center Score Center Score

HongKong 100 Tokyo 100 Tokyo 100Tokyo 99 Hong Kong 90 Osaka 84Osaka 93 Osaka 81 Hong Kong 81Singapore 811See Table 2 for notes.2SeeTable3 for notes.

systems by bankers and businessmen, and to a lesser extent by news organiza-tions and governments. The number of international telexes (sent and received)for Japan increased from 4 million in 1955 to 6 million in 1975; in Hong Kong,theincrease went from just under 1 million in 1955 to 3 million in 1975; and inSingapore, it went from less than one-half million in 1955 to 2 million in 1975. Thetelex use pattern in the principal host center countries is: India's internationaltelex activity increased from5 million in 1955 to 11 million in 1975; Malaysia's in-ternational telex activity remained constant at approximately 2 million in eachtime period;and Indonesia's telex activity remained at 1 million throughout.India's relatively high level of international telex activity results primarilyfromfour factors. First, its two principalcenters, Bombay and Calcutta, are host cen-ters in which most of their international finance activities are handled by a largenumberof foreign banks instead of a few locally headquartered banks. Second,there is no clear hierarchyof finance centers in Indiabecause Bombay and Cal-cutta (1,500 miles apart) have been, and still are, prominent within their respec-tive regions. Bombay's finance, industrial,and trade activity services West India,and Calcutta's activities serve East India.Third,Calcutta, as a result of being theprincipal operations base for the BritishEast IndiaCompany, is linkedprincipallyto London. Bombay's connections are more diversified; it has strong ties to Lon-don, but it is also well connected to New York,Tokyo,and Hong Kong.Fourth,India(East and West) is a large importerof grain products, and surely a large numberof international telexes accompany this activity. The financial center heirarchyinJapan, on the other hand, is clearly defined with Tokyo at the apex.19Kobe andYokohama to a large extent, and Osaka to a lesser extent, transact their interna-tional activities through and from Tokyo. Also, the structure of finance and gov-



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ernment administration in Japan are both in Tokyo and are therefore moreamenable to scale economies than is India,which has two eminent centers of fi-nance and separate center (New Delhi) for political administration.When comparing the centers on the basis of inflation and capital flows, no clearpattern emerges with respect to each groupof centers. The capital flow accountswere examined on a net basis for short-term,long-termtotal, and direct flows. Itmay be noteworthy that Japan has consistently been a net exporter (to the re-gion) of both direct investment capital and long-termcapital when direct invest-ments are excluded.When gross fixed capital formations, as a percent of gross national product, isexamined, the countries representing the "international" centers have outper-formed (-invested) the host center countries. Perhaps one explanation for Singa-pore's success incatching up with Hong Kongis that since 1965 Singapore's rateof capital formation has been larger. Between 1965 and 1970, Singapore had acapital formation rate of 27 percent compared with Hong Kong's 20 percent. Be-tween 1970 and 1975, Singapore's rate of capital formation was 37 percent andHong Kong's was 24 percent.An examination of the total trade accounts of the international and host center'scountries contains, perhaps, the most telling data. The total trade figures for1955 and 1975 are given in Exhibit 1. (Source:Directions of Trade, Washington,DC: International MonetaryFund,various issues.)

EXHIBITTotal Trade Figures (1950, 1975)

Billionsof U.S.Dollars1955 1975

Japan 4.5 113.7Hong Kong 1.1 13.1Singapore 2.4 13.5India 2.6 10.4Indonesia 1.6 11.9Malaysia 1.6 7.4

Itappears that Hong Kong's ability to increase its trade at a rate more than dou-ble that of Singapore's is the single most importantfactor which has allowed it tostay ahead of Singapore in international finance. Even though Singapore'sgrowth rate in trade has not kept pace with those of Hong Kong,Japan, or Indone-sia, it appears that its entrepot activities have increased duringthe past 20 years.Entrepot roles for trade taking place between Pacific Asia and South Asia, theMiddle East, and Europe were carried out-prior to WorldWar II-by Bombay,Calcutta, Rangoon, and Kuala Lumpur,as well as Singapore. The reason for Sin-gapore's apparent increase in warehousing and distributionactivities may be theresult of the two factors: (1) it was the last of the former Britishcolonial posses-sions to gain independence, and (2) its strategic location-between the Indianand Pacific Oceans-is unmatched. An increase in entrepot activities naturallyincreases the need for financial services.Japan's phenomenal increase in trade since the end of World War IIexplains inlarge partwhy it has three prominent international financial centers. The demiseof India's two host centers appears to be tied to its relatively slow rate of inter-national trade growth, which may be due, in part, to a decline in its entrepotactivities.



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The principal determinants of Asian international banking center structure andrankthroughout the twentieth centurywere:the activities of the locally headquar-tered banks-LBDIL (the foremost determinant), and LBHDQ,and FBDIL.Themost importantdeterminants of international financial center structure and rank(1955-1975) are the same as for the banking center structure and rank.The difference in structure between banking and financial centers is notable forat least two reasons.20 First, internaitonal "banking"center preeminence in Asiabetween 1905 and 1960 was always shared by at least two centers.21 There were 6centers at the apex of the hierarchy in 1920 and 1940; 5 centers at the apex in1935;4 centers in 1905, 1910, 1915, and 1930;3 centers in 1955;and 2 centers in1925 and 1947. In 1960, Tokyo was the sole occupant of the apex, but in 1965,Tokyo again shared that position with Hong Kong. By 1970, Tokyo was againalone at the top, and, since then, it has continued to solidify its position. One ex-planation for this pluralityin eminence, prior o the latter half of the 1960s, is thatthe region was a net borrowerof capital from Europe and North America;and,with the exception of Japan, all of the Asian countries were under some type ofcolonial rule until the end of WorldWarII.As a result, the status of these bankingcenters was determined by their proximityand relationship, principally,to someEuropean center-mainly London, Amsterdam, or Paris. The eminent Japanesecenters during this period were not overly dependent on any Europeanor NorthAmerican center; their focus was primarilyAsia. Because of this regional in-terest, one is hard-pressed to find a discussion of any Japanese financial centerin the accounts of international finance of that period.Second, international financial center preeminence in Asia has been virtuallytheantithesis of banking center preeminence. Since the end of World War II,eachsignificant test period has had only one center at the apex of the hierarchy. In1955, Hong Kong was Asia's preeminent center; it seems reasonable to assumethat Hong Kong was also the preeminent financial center in 1947 as well-eventhough FFA and FFL are not available for that period-because it was the top-rankedbanking center. In1960, the only test period when there is more than onecenter at the apex, Hong Kong is joined by Tokyo. Since 1965, Tokyo alone hasbeen the region's preeminent center. Its status during that time has increasedsubstantially (as measured by rank score differences- see Table 4).The determi-nants most responsible for significantly separating the group 1 (apex) centerfrom group 2 centers are: (1) 1955-Hong Kong's separation from Tokyo andOsaka is due to LBR/DILnd LBHDQ;2) 1960-Tokyo and Hong Kong are sepa-rated from Osaka as a result of LBR/DIL;3)1965-LBR/DIL also separates Tokyofrom Hong Kong and Osaka; (4) 1970-Tokyo is separated from the 12 group 2centers by FFA;and (5) 1975-Tokyo's separatioh from Osaka, Hong Kong, andSingapore is due to LBHDQand FFL.What clearly emerges frormhis analysis is that Asian centers, from 1900 untilsometime duringthe latter years of the 1960s, were predominantly internationalbanking centers. After1965, Tokyo began to show signs that it was willing to pro-vide financial capital to foreigners in substantial amounts. In1965, Tokyo's FFAtotaled only $2.4 billion; by 1970, it had increased to $9.4 billion; and in 1975, itwas $14.5 billion, a 500 percent increase over the 1965 level. The second largestFFAportfolio was held in Osaka; in 1975, it totaled $7.3 billion. At year end 1978,the totals were $44 billion and $19 billion, respectively. Tokyo's FFL increased$13.2 billion between 1965 and 1975, to $14.9 billion. In1978,Tokyo's FFLwas $28billion, and Osaka's was $13 billion. Tokyo and Osaka's FFAand FFL totals arefar below the amounts in London,Paris, New York,and Frankfurt,but these totalsclearly indicate that the Japanese are willingto allow Tokyoand Osaka to becomemore active in the arena of international finance. In interviews with officials ofeight of Japan's ten largest banks (duringthe summer of 1979), I was informedthat virtuallyall of Tokyo and Osaka's FFAwere placed in the countries of Eastand Southeast Asia.

INTERNATIONALBANKINGs.FINANCIALCENTERS

Journal of International Business Studies, Winter1980 31


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When one considers the announcements during 1978 and 1979 of Japaneseagreements to furnish China with large amounts of capital (financial and real)toassist in modernizing and industrializing its infrastructure, it is difficult not toconclude that Japan sees an economically strong Asia as being veryimportanttoits future. This is particularlyevident when consideration is given to the growthofTokyo's and Osaka's FFA and FFL since 1965.

CONCLUSIONSThe geographical distribution of international financial centers within the Asianregion is heavily influenced by international trade. All of the important centersare seaports, whereas the evolution and development of international financialcenters in other parts of the world have not always followed the patternof beingits country's principal seaport. At times, the administrative capital doubled asthe country's preeminent financial center; for example-Paris; Berlin, in twenti-eth century Germany (upto 1945);Milan;Madrid,after 1935; Mexico City;and SaoPaulo, since 1960.22Wars, political ideology, and philosophy have also had an impact on internationalfinancial center distribution and location. Yokohama was Japan and Asia's prin-cipal international financial center from sometime between 1920 and 1925 until1940; in Asia, Yokohama shared this distinction with Hong Kong and Shanghaiduringthat period. By 1940, Tokyo,as a result of its increased direct links (LBDIL)to other centers, had replaced Yokohama as Japan's top center; Yokohama, how-ever, was still quite competitive. Tokyo's eminence in Japan following WorldWarII was virtuallyguaranteed by American policy initiatives during the occupationof Japan (1945-1952) when Yokohama was completely dismantled as an interna-tional financial center. Yokohama's principal bank, the Yokohama Specie Bank,was dissolved and its functions were moved to Tokyoand, to a large extent, givento the newly formed Bank of Tokyo. As a result of this, and other actions, Tokyobecame Japan's, and now Asia's, principal international financial center. Fortheregion, however, in the years immediately following WorldWar II,the Americanand British governments were preparing China to become their economic andpolitical stalwart in Asia. As a result, moves were underwayto returnShanghaiand Tientsin to their prewar status in international finance. However, whenShanghai and Tientsin fell to the Chinese Communists in 1949, the UnitedStatesimmediately shifted its focus to Japan; and the British concentrated primarilyontheir remaining colonial possessions in the region-Hong Kong, Malaysia, andSingapore. War also played a significant role in Jakarta's rise as an internationalfinancial center in 1940. The invasion of the Netherlands by Germany (May 1940)caused two Dutch banks to move their headquarters fromAmsterdamto Batavia(now Jakarta).Tokyo's ascendency to international financial center preeminence in Asia waspreceded by its rise to international banking preeminence in 1960 (a status it losttemporarily during the middle 1960s). On both levels, Tokyo supplanted HongKong, which practices, in large part, the British brand(as does Singapore) of fi-nancial leadership. The Japanese style of conducting economic, finance, andtrade activities has never really been understood by Westerners. The enormouslysuccessful Japanese economic recovery following WorldWar II,even today, isseen primarilyas an international trade offensive that was launched in the mid-dle 1950s. This view may be gradually changing; in the past few years, a consider-able amount of literature on Japanese multinationals and their direct investmentactivity has been published. Nevertheless, Tokyo remains conspicuously absentfrom the writings on important international financial centers. Western writersand scholars tend to measure all financial centers by how closely they approxi-mate the norms of London or New York.The most frequent criticism of Tokyo isthat its long-termcapital markets are thin and excessively regulated. No mentionis made of the fact that the financial culture of Tokyo(andJapan) is considerably



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more debt-oriented than are Western centers. Japan's domestic long-termcapitalneeds are supplied almost entirely by a commercial banking system which in-cludes certain specialized banks, such as the Industrial Bank of Japan and theLong-TermCredit Bank. Underthese conditions, the Japanese have little need tofully develop their long-term capital markets. The means of acquiring capital inTokyoand Osaka may be different fromthose used in the West, but the end resultis the same as it is in London, New York,or Paris. Heavy and close regulationsare common practice throughout Japanese society; such control is not reservedfor foreigners or foreign transactions. Theirsystem of administration guidance isvery much a part of their culture and history; consequently, I do not see theseJapanese cultural traits as diminishing the status of Tokyo and Osaka as impor-tant international financial centers.The massive transfer of wealth from the industrial nations to the oil exporting na-tions over the past six years is altering the financial culture of Europeand NorthAmerica. The equity markets in many of these countries have been under con-tinuous pressure since November 1973; as a result, many of the financing re-quirements of the world's large industrial corporations have been met throughvarious forms of debt. Duringthis same period of time, an enormous increase inbank debt-to developing countries is raising questions about the soundness ofthe international financial system. Ifthis trendcontinues, and Iexpect it will, theJapanese approach may not seem so narrowand restrictive. And the Japanese,with their large reserves and their propensity for savings, will be important par-ticipants.Inrecent years, the Japanese have been underconsiderable pressure to cut backon certain of theirexports to Western Europeand the UnitedStates. As these cut-backs occur, the Japanese are certain to look moretowardAsia for their principalmarkets. This shift will increase Japan's dependence on the countries of the re-gion and vice versa, thereby making it necessary for the Japanese to becomemore directly involved in Asia's economic and political affairs. As thisdependence increases, Japan's economic, social, and political well-being will de-pend, to a large extent, on its ability to have a positive impact on the developingcountries of Asia so as to: (1)foster economic development, (2)minimize inflationrates, and (3)discourage disruptive speculation-through market intervention-in the region's commodities, currencies, securities, and other assets.As these and other events come to pass - such as: continually increasing capitalneeds of developing Asian countries; increasing economic difficulties of the in-dustrial nations (inflation, high unemployment, etc.), which will turn their focusinward to concentrate on domestic concerns; and the diminished willingness(and perhaps ability) of the international financial institutions to recycle OPECsurpluses to the developing nations-the pressure on Japan to fill more of thevoid will continue to grow. The pressure on Japan to assume more and more ofthe responsibility for Asia is almost certain to be even greater-in effect becom-ing Asia's lender of last resort.23Interms of financial capacity and institutionalinfrastructure,Tokyoand Osaka are clearly the only Asian centers capable of per-forming such a function. And, given Japan's industrial strength, geographicaland historical foci, and financial capacity, its centers are the only ones that maypossess the urgency and necessity to see to it that the region's economic statusremains relatively intact.Tokyo and Osaka's advantages are quite large and significant within the contextof Asian international financial centers. Tokyo has 7 large internationally activebanks (Bankof Tokyo, Dai-ichi Kanyo, Fuji, IndustrialBankof Japan, Long-TermCredit Bank of Japan, Mitsubishi, and Mitsui),and it has direct links to 13 Asiancenters (allexcept the 3 Chinese centers). Osaka has 3 large banks (Daiwa,Sanwa,and Sumitomo), and it has direct links to 5 Asian centers. Hong Kong,with 1 largeinternationally active bank (Hong Kong and Shanghai Banking Corporation)haslinks to 6 Asian centers. And Singapore with 1 large internationally active bank



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(Overseas Chinese Banking Corporation) has direct links to only 3 Asian centers.Therefore, the financial center activities in Tokyo and Osaka are controlled, inlarge part, by their own institutions; the same cannot be said of Hong Kong andSingapore.The results of this analysis show clearly that Asian international financial cen-ters are currently divided into three distinct groups: (1) international financialcenters of the first order-Tokyo; (2) international financial centers of the secondorder-Osaka, Hong Kong, and Singapore; and (3) 13 host international financialcenters. The significance of these classifications is that Tokyo is shown as theonly Asian center capable of providing the region with a wide range of interna-tional financial (and ancillary) products and services. The second order centersare not lacking in international focus and attitude but their status is clearly de-termined by their relationship with international centers of the first order: Osakawith Tokyo; and Hong Kong and Singapore with London, New York, and Tokyo.Therefore, it appears that Tokyo's status as the preeminent center in Asia hascontributed to it becoming a significant international center in the world. As aresult, Tokyo should probably be viewed as "the" preeminent center in Asia com-peting with London and New York for global preeminence.

FOOTNOTES 1. Charles P. Kindleberger,The Formation of Financial Centers: A Study in ComparativeEconomic History,Princeton Studies in InternationalFinance, No. 36 (Princeton:PrincetonUniversity,1974),p. 1.2. Hang-Sheng Cheng, "The U.S. West Coast as an International Financial Center,"Economic Review of the Federal Reserve Bank of San Francisco, 1976, pp. 9-19.3. Notably: (1)Anindya K. Bhattacharya, The Asian Dollar Market:International OffshoreFinancing (New York:Praeger, 1977);(2) Robert F. Emery, TheAsian DollarMarket,Boardof Governors of the Federal Reserve System, International Finance Discussion Papers, No.71, November 1975; (3)Theodore Geiger, Tales of Two City-States: The Development Pro-gress of Hong Kong and Singapore (Washington, DC: National Planning Association,1973); (4)Zoran Hodjera, "TheAsian CurrencyMarket:Singapore as a Regional FinancialCenter," Staff Papers (Washington, DC: International Monetary Fund, June 1978), pp.221-53; (5)Helen Hughes and You PohSeng, eds., ForeignInvestmentand Industrializationin Singapore (Sydney:Australian National University Press, 1969);and (6)Philip Thorn,ed.,BankingStructures and Sources of Finance in the Far East (London:Banker Research Unit,1975).4. Japan's exchange control regulations for international capital flows are detailed in,Commentary on the Latest Foreign TradeProcedures in Japan (Tokyo:Japan Trade NewsPublishers, Ltd.1978).5. Kindleberger,p. 6.6. Gunter Dufey and lan Giddy, The International Money Market(Englewood Cliffs, NJ:Prentice-Hall, 1978), p. 35.7. Marcus Nadler, et al., TheMoney Market:And Its Institutions (New York:Roland Press,1955), pp. 283-284.8. Max J. Wasserman, et al., InternationalFinance (New York:Simmons-Boardman Pub-lishers, 1963), pp. 188-189.9. Kindleberger, p. 57.10. Nadler, pp. 284-286.11. Kindleberger,pp. 9-10.12. HarryG. Johnson, "Panama as a Regional Financial Center,"Economic Developmentand CulturalChange, January 1976, p. 261.13. Kindleberger,pp. 10-11.14. For an account of Japanese investment activity inAsia, see TerutomoOzawa, Multina-tionalism, Japanese Style (Princeton, NJ: Princeton University Press, 1979); and YoshiTsurmi, TheJapanese are Coming (Cambridge, MA:Ballinger Publishing Co., 1976).15. Donald C. Hellmann, "Introduction:Towarda New Realism," in Donald C. Hellmann,ed., China and Japan: A New Balance of Power (Lexington, MA:Lexington Books, pp.29-30).16. Inaddition to the 17 Asian centers, 58 other international financial centers are used tomeasure the links orconnections between centers. Asian centers, as do other centers, find



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it importantto have contact not only with centers in their region but also throughout theworld. Included in the 58 centers are New York,Chicago, Los Angeles, San Francisco, andSeattle in the U.S., Montreal and Toronto in Canada, and London. Inaddition, there are 37European centers, 9 LatinAmerican centers, 3 African centers, and 2 Australian centers.Sixty-eight commercial banks are used in this study. It is believed that these institutionsare the world's most importantinternationallyactive banks. The names of many of thesebanks have been changed over the years, resulting frommergers, acquisitions, reorganiza-tions, and so forth; these factors were recognized and accounted for in the analysis.17. These variables are intended to measure the activities of the center, not the country.Therefore, a variable such as, international trade-which is not available by port (center)for any useful historical period, for a representative number of centers-is not used tomeasure international financial centers.18. Bank of America's emphasis on retail, mortgage, small business, and agriculture fi-nancing did not begin to shift in any significant way until the latterpartof the 1960s whenwholesale and international banking increased in importance. The shift came about be-cause Bankof Americafelt that it had successfully blanketed Californiawith its branchesand growthpotential was moreattractive inthe wholesale and international arena. Even to-day, Bank of America's branch (over1,200)and retailoperations throughout California ac-count for more than 60 percent of its business (deposits and loans).19. Tokyoalso doubles as the administrativecapital forJapan. InIndia,the administrativecapital is New Delhi.20. The rank order for both international banking centers and international financial cen-ters is the same for all tested periods between 1955 and 1975.21. A center is considered preeminent if it is a member of the apex of the hierarchy.22. Milanand Sao Paulo are not the administrativecapitals butthey are their nations' prin-cipal commercial and industrialcenters, in addition to being the principal international fi-nancial center.23. The need for a lender-of-last resort is highly debatable. Forthe argument against, see,Milton Friedman and Anna J. Schwartz, A Monetary History of the United States,1867-1960 (Princeton: Princeton University Press, 1965). In support of this thesis, seeCharles P. Kindleberger,Manias, Panics, and Crashes: A Historyof Financial Crises (NewYork:Basic Book, Inc. 1978), Chapters 9 and 10. I support the Kindlebergerargument.


Documents

Ascent of Tokyo Financial Center