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Journal of Economic Geography Advance Access published online on November 12, 2007
Journal of Economic Geography, doi:10.1093/jeg/lbm042
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© The Author (2007). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Foreign banks’ attraction to the financial centre Frankfurt—an inverted ‘U’-shaped relationship{dagger}

Michael H. Grote*

*Department of Finance, J. W. Goethe-University Frankfurt, D – 60054 Frankfurt am Main, Germany. email < grote{at}finance.uni-frankfurt.de>

This article traces the location of foreign banks in Germany from 1949 to 2006. As suggested by New Economic Geography models, we find an inverted ‘U’-shaped concentration of foreign banks in Germany. Only after a competition between several cities, Frankfurt has emerged as the pre-eminent financial centre, triggered by the ‘historical event’ of setting up the German central bank in Frankfurt. After a strong increase, Frankfurt's share in the location of foreign banks in Germany decreases slowly but significantly since the mid-1980s. We conclude that there will be a lesser role in Europe for second-tier financial centres in the future.

Keywords: financial centres, ‘U’-shape, foreign banks, Frankfurt,
JEL classifications: R11, N94

{dagger}Part of the research has been conducted while the author was Metzler visiting professor at the Wharton School, University of Pennsylvania.

Date submitted: 18 April 2007     Date accepted: 26 September 2007


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