For nearly two hundred years, London ruled as the world’s financial center. As the British Empire spread, so did the influence of its bankers, based in the one-square-mile City of London in the heart of the larger city. As historian Jack Weatherford puts it, “From the offices, conference halls, and trading rooms of the City flowed the money that kept Nelson’s ships supplied at Trafalgar, financed the conquest of India, underwrote the mines of South America and the railroads of the world, supervised the banks of the largest and most far-flung empire in the world, and insured the legs of Hollywood movie stars.”
By 1986, though, London had lost its crown to New York, stagnating under regulations that kept British finance essentially unchanged from the 19th century. On October 27, 1986, Prime Minister Margaret Thatcher’s Conservative government instituted sweeping deregulation that changed the nature and future prospects of English finance literally overnight. Dubbed the Big Bang, the changes eased restrictions on mergers and acquisitions, opened British firms to foreign ownership, and moved trading from a face-to-face exchange to a digital transaction. The ensuing explosion of financial activity in the City of London led to a space crunch and the birth of Canary Wharf—a second financial hub built on a former dockyard.
By 2013, employment at Canary Wharf had risen to more than 100,000 and it had more bankers than the City. The project was expanding, building up to 3,000 homes for people of varying income levels. In 2014, the developers said that over the next decade, Canary Wharf would nearly double the people working and living in the area.
Then came Brexit, which has the potential to scuttle those plans as financial services companies move to Ireland and continental Europe. While the developers say they remain confident about the project’s future, others are predicting an ebbing of Canary Wharf’s power and influence in the financial world.
William Goetzmann, Edwin J. Beinecke Professor of Finance and Management Studies and Director of the International Center for Finance, has created a Yale raw case study that looks at Canary Wharf from the Big Bang to Brexit, asking how it will fare in coming years and decades. In an interview with Yale Insights, Goetzmann discussed what the case tells us about the role of financial centers in a world shifting toward online banking and the challenges inherent in major real estate developments—as well as the future of Canary Wharf.
Q: What is the focus of the Canary Wharf case?
The Canary Wharf case is a revisiting of a famous project that sought to transform London. It was audacious from the beginning. The Reichmann family decided that they could recreate London’s Financial District in a piece of land outside of London. They’d had success with the World Financial Center in New York. Ultimately, the project worked but the original developer failed. The continuity of the project throughout the decades has been based upon creative financing and the project reinventing itself.
Canary Wharf is going to need to reinvent itself yet again. Brexit is chasing bankers in England offshore, while fintech is transforming finance from a location-centric activity to something that takes place over the internet. How are the Canary Wharf developers dealing with these two big, giant issues? This is the setting for the case.
Q: How much do financial centers matter and how have they changed over time?
Financial centers go back thousands of years. The earliest important financial center was the city of Athens, because it was a center for grain trade. That’s where the first banks developed and the first laws that made it possible to finance long-distance loans and trade and so forth. London became an important financial center toward the end of the 17th century. It maintained that dominance in the world up until the First World War. London was the place where you went if you wanted to borrow money in a big way. The American railroad companies, for instance, borrowed a lot of money from the British. In the 19th century, it was where the money was. London had geographical proximity to Europe and a colonial legacy that made the city a magnet to people from around the world.
In the 20th century, Britain was supplanted by New York City. Margaret Thatcher wanted to revive London as a financial center and struck a deal with the developers of Canary Wharf. And it worked. London very quickly rose to being an important center for banking and for the issuance of stocks and bonds.
Canary Wharf got built so quickly around the concept of big banking spaces and trading floors that it now has the challenge of adapting to a rapidly changing landscape. Fintech has changed the way that people work in the finance industry. The developers of Canary Wharf had to rethink what kind of buildings they want to continue to build, how to retrofit the buildings that they currently have, and then how to build a community in that place that people feel comfortable about living in and working in. Bankers working 100-hour weeks and sacrificing their family lives has been in decline the last decade. Younger people don’t want to face that kind of future.
Q: What makes a neighborhood a real neighborhood? What are the developers doing to try to take a financial center that empties out at the end of the day and turn it into a place where people want to live?
Canary Wharf’s biggest problem is that it’s a long way from the middle of London. The immediate neighborhood when it was first constructed was not very interesting. It was constructed out of old docklands, which is why it could happen in the first place—it’s vast and undeveloped. How do you create a brand-new city that employs tens of thousands of people when it’s a half-hour ride from London? The developers focused on creating comfortable, park-like spaces where people could congregate during the middle of the day. And they used the size of Canary Wharf to their advantage, building residential housing around the edges in human scale instead of huge monoliths, and with livable, walkable streets so that people will meet each other. They also focused on the transportation system. How do you make it easy to get in and out? That took a long time to solve.
Q: How did they convince people to relocate 30 minutes outside the City of London?
Historically, the pitch was easy. It was a time when banks were building their trading floors. The City of London—that is, the old financial district—just didn’t have any buildings that could accommodate the needs of finance at that time. In addition, there were banks that were moving into London because they were attracted by the regulatory environment that needed to find places where they were comfortable with based upon their prior locations. For example, New York banks coming into London wanted to see facilities that looked and felt and worked like the spaces that they’d been using before. It was more of a matter of coordination than it was convincing them that this was a good place.
And once you get a critical mass and show them you can build exactly what they need, you start to gain momentum.
Q: How was the Canary Wharf plan received in London?
The original reaction was somewhat negative because the designs were so modern. Prince Charles, for one, wanted the development and modernization of London to take place within the historical tradition of London buildings, meaning low-rise with lots of stone.
But that’s just not what Canary Wharf was or is now. Form follows function. In the case of the skyscrapers in Canary Wharf, that is an efficient structure for the kinds of business that they did at that time. Being able to have large floors where you can have lots of people able to contact each other and even see each other at the same time was quite useful when traders with screens were making deals.
This solved the problem of getting everybody in one place at the same time. The Financial District in London is a rabbit warren of little streets and it’s very hard to find a building that can accommodate your whole company.
Q: What impact did all the skyscrapers have on low-rise London?
A couple of things happened. First, London eventually found a way to build larger buildings in the Financial District. Property owners in the traditional historic district were able to put together plans and parcels to build some very tall and very creatively designed buildings. Now, when you go to London, there’s a building that’s shaped like a cucumber. Another’s called the Walkie-Talkie. Another’s called the Shard. They’re objects of curiosity and attention in a city that puts great value on tradition. London through the ’90s and 2000s began to think of itself again as the world’s capital in many ways, and it embraced lively, high-tech projects.
Q: What impact is Brexit is having on Canary Wharf?
It’s introduced a great deal of uncertainty, because nobody really understood what the outcome would be. Nobody knows, to this day, how foreigners are going to be treated and what the financial regulations really will end up being. The expectation is that Britain will no longer be the front door to doing business in Europe. This has caused companies to announce that they’re moving operations to other cities in Europe. We’ve seen a decline in the need for office space in the Financial District. How much is that affecting Canary Wharf? That’s a key question in the case. Can they maintain its vitality? Do they need to reposition it as something that’s not only about finance? Can they create a sense of it being mixed use? That means more residential and other kinds of commercial properties. Those are the options that they have going forward.
Q: Is Canary Wharf at a point where it can exist with a reduced role of finance?
There’s certain things that Canary Wharf does have that still can’t be replicated in other places in London. Extraordinary infrastructure and high-tech infrastructure. Extraordinary security because it’s on this docklands space. It’s very easy to control who comes in and out. It also has a very creative, thoughtful owner and developer that tries to think a few steps ahead. They’ve been part of a really successful campaign to promote fintech in London, which now bills itself as the fintech capital. It has huge fintech conferences. There are fintech tours. The Canary Wharf developer has created fintech spaces for entrepreneurs, small companies, technological experimentation and innovation.
As we go further into the case, we’re going to find out more and give our students more information to probe and see whether that can take the place of the lost conventional banking jobs that are exiting.