The prospect of Brexit has many wondering whether or not London will remain Europe's main financial centre. Yet, for all the talk of Zurich or Frankfurt stealing London's crown, Istanbul is a city that's doing its utmost to move up the food chain of financial rankings.
It may be an outsider in the contest - and is currently reeling from recent terrorist attacks - but the Turkish government is intent on boosting the city's potential as a financial centre.
In an era of worldwide financial liberalisation and integration, international financial centres have significantly increased in number and geographical span since the late 1970s. These centres can be seen as the key points in the global financial system, mediating credit and debt for public and private actors across borders.
With numbers come rankings. The biannual Global Financial Centres Index (GFCI) is arguably the most famous. It ranks 87 cities according to a large number of criteria within regulatory standards, business environment, human capital, infrastructure, and reputational factors. In doing so, it actually relies on numerous global indices related to these domains, and on international finance professionals' opinions. London has consistently topped the GFCI in recent years.
London's performance as a financial centre makes it clear why politicians and businesses take these indices seriously and want their business capitals to be highly ranked. London makes a significant contribution to the UK's economic growth, employment, and government revenues. It is therefore not surprising that there have been various state-led initiatives to increase the status of world cities such as Jakarta, Doha, Casablanca, and Shanghai in the global financial system.
Istanbul is among them. Since 2007, the Turkish state has had the vision of making Istanbul first a regional, and then a global financial centre. For this, the ruling Justice and Development Party (AKP) has put in place a range of initiatives to hoist Istanbul into the GFCI's top 25 by 2018. But careful examination of its policies indicates that they are more about securing political power than achieving real economic success.
The AKP seems to have prioritised two initiatives for Istanbul as a prospective global financial centre: rebuilding parts of an already functioning infrastructure, and shifting Istanbul's financial services to focus on Islamic finance.
The first priority has been to relocate the state-owned banks and market regulators from the political and administrative capital Ankara to a more upmarket area of Istanbul. The second focuses on Islamic finance to attract pious savers and investors to the Turkish financial system.
Neither policy will help Istanbul climb up the ranks in the GFCI any time soon. In an age of instant communication and decreasing importance of physical proximity, the relocation to Istanbul will not necessarily increase Istanbul's score in the GFCI's 16 instrumental infrastructure factors. And Turkey will be hard pressed to compete with existing Islamic finance centres such as London, which already offer comprehensive services.
Instead, these policies can be better understood as part of the AKP's policies of helping sustain economic growth by grand infrastructure and building projects, while shifting the Turkish economy to a more Islamic-oriented one. They sit in a context of sluggish economic growth and the ascendancy of Islamic conservatism in Turkey in recent years.
Improving in the rankings
Istanbul is the business and finance capital of Turkey. It generates almost a quarter of the Turkish GDP and accommodates almost a fifth of Turkey's population of 79m people. In September 2015, Istanbul was profiled by the GFCI and marked as an "established transnational" financial centre alongside the likes of Chicago, Munich and Tokyo. It has earned this profile in the GFCI thanks to the speciality, diversity and connectivity of its financial services and markets.
But, despite being associated with such developed cities, Istanbul's overall ranking in the GFCI dropped 12 places to 57th in September 2016. This was put down to political uncertainty, terrorism and armed conflict in and around Turkey. The GFCI's rankings methodology is sensitive to such adverse events (so expect a drop in London's top ranking in 2017 thanks to Brexit).
If Istanbul is to reach the top 25 in the rankings any time soon, Turkey also needs to improve its financial regulatory standards, business environment and labour quality. It is not clear how the AKP's immediate focus on building work - which is estimated to cost several billion dollars in an already densely populated and built-up Istanbul - can help. Instead, it might actually worsen Istanbul's infamous traffic congestion and undermine the quality of life - another measure in the GFCI rankings.
The new focus on Islamic finance will surely help Istanbul by broadening the city's financial offering. Yet, Islamic finance should not be promoted as a replacement for secular financial services that are already provided in the city.
After all, Turkey has for a long time cultivated business, trade and financial relationships with the rest of the world on the basis of its secular principles. It would profit from continuing in this tradition.