Closely watched by industry practitioners, policymakers and academics alike, financial centre rankings often provide an indicator of the geo-economic circumstances that drive the rise of prominent financial centres and herald the fall of declining ones

It is therefore with little surprise that many are reading the runes with two recently released financial centre rankings, with some sounding the alarm for a potential decline in Singapore’s pre-eminence as a leading Asian financial centre.

First, Collier International’s Top Locations in Asia: Finance report ranks Singapore third best finance location in Asia, trailing behind Hong Kong and Tokyo. While Singapore was ranked favourably on political stability, ease of doing business and high-quality infrastructure, it did not perform as well on property factors such as availability of prime grade office space and banking scales.

Similarly, the 24th Global Financial Centres Index (GFCI) ranks Singapore fourth most competitive financial centre in the world, behind New York, London and Hong Kong. While Singapore had previously been ranked third in the 21st GFCI, it has since been overtaken by Hong Kong, with the gap between these two cities progressively widening. In the 24th GFCI, Singapore trails Hong Kong by 14 points, while Hong Kong only trails London by 3 points.

With arch-rival Hong Kong consistently outperforming Singapore in both rankings, the question that arises comes to mind is whether Singapore’s position as a global financial centre is in decline.

REFOCUSING ON RESILIENCE

There are no easy answers to such a question. First of all, we should note that such rankings are often a snapshot of a particular point in time. Furthermore, such rankings are driven by financial centres’ reputations as well as industry perceptions of these centres. Many of these perceptions and reputation scores are in turn driven by expectations of financial sector growth.

While Hong Kong may indeed be leading Singapore at this point in time, what these rankings do not reveal are the various economic and financial sector reforms that are currently taking place in Singapore.

At a recent G20 Leaders’ Summit held in Bueno Aires, Finance Minister Heng Swee Kiat called for greater efforts to build up financial sector resilience at both the national and regional levels. In a similar focus on financial sector stability, the Monetary Authority of Singapore (MAS) also recently launched a $30 million cybersecurity capabilities grant, with the aim of ensuring cyber resilience in Singapore’s financial services sector.

Given external headwinds such as the ongoing trade war between China and the US as well as emerging risks of a building up, Singapore’s financial policymakers have rightly turned their attention to financial system stability and resilience.

Indeed, Singapore’s current position as a leading financial centre owes much to the stability of its financial system and the robustness of its regulatory infrastructure. Given an unstable external environment, it makes sense to consolidate its policy efforts on maintaining these key strengths.

While financial centre rankings tend to measure financial centres’ growth potential, they do not necessarily account for efforts by policymakers to ensure the long-term stability and viability of their financial centres. Paradoxically, long-term efforts to ensure financial sector stability and resiliency may result in short-term declines in a financial centre’s standing on growth-centred financial centre rankings.

ROBUSTNESS, NOT RESILIENCE

It should also be noted that current understandings of resilience from a public policy perspective are far from consistent. Much of this research continues to draw from ecological studies that define resilience as a society’s ability to ‘bounce’ back from shocks and crises. Such an ecological understanding of resilience assumes that the goal of policymakers is to return to a pre-crisis status quo.

As my research with Giliberto Capano of the University of Bologna has shown, policymakers should be focusing on what we term ‘robustness’, or the ability of societies and policy processes to maintain functionality amid crises, rather than returning to a pre-crisis status quo.

To take an example, if Asian economies had reverted to pre-crisis regulatory systems in the aftermath of the 1997 Asian Financial Crisis, they would have found themselves vulnerable to the same shocks and risks that had sparked off the crisis in the first place. Rather, capacity-building efforts were put in place, such as deep regulator reforms as well as the formation of the Chiang Mai initiative, which provides countries whose currencies are under attack with access to foreign reserves through swap agreements.

As Singapore faces an external environment that is increasingly volatile, it will need to keep building up its capabilities to weather through crises. The cybersecurity capabilities grant is a step in the right direction since this provides financial institutions with the capabilities to retain functionality amid potential cybersecurity threats. Similarly, Singapore’s ongoing efforts to stress-test its financial institutions and households ensures that it possesses the ability to weather through potential financial crises.

Certainly, such efforts at ensuring financial sector stability and robustness are crucial for Singapore’s long-term viability as a leading global financial centre, even if the short-term benefits of such actions are not always clear. Like a well-oiled machine, the success of Singapore’s financial sector will lie in its ability to keep functioning, even in the face of shock and crisis.

ABOUT THE AUTHOR:

Woo Jun Jie is an Assistant Professor in the Public Policy & Global Affairs Programme of Nanyang Technological University.