So the premium on sound regulation and good living conditions has gone up. Location However, the trend towards concentration is unlikely to end in the extreme of only one or two global financial hubs. Location still matters even in the globalised financial landscape of the New Economy. Physical proximity to potential clients will remain important, especially in capital market origination, the M&A business or private banking, where personal services and physical interactions with clients are essential. Indeed, the growing customisation of finance to suit local conditions and meet individual client needs will mean that regional financial centres will continue to play a complementary role. Competition among financial centres will not be a zero-sum game of winner takes all. Smaller centres can coexist with the mega centres, focusing on different niches and serving different regions. There are thus collective gains to be shared through co-operation. Linkages between key financial centres, both across and within time zones, can help the centres to reap the benefits of integration while at the same time preserving close access to local communities. Similarly, there is an important role for closer regulatory co-operation and, where appropriate, harmonisation of standards, particularly in cross-border listing requirements, ongoing supervision, and accounting and disclosure. For the regions they serve, international financial centres make good economic sense. They provide easy access to funding and hedging opportunities, links to other key centres, and markets with liquidity and reach, especially for emerging economies. Financial centres tend to prosper when their hinterlands are buoyant.

Moreover, excessive intervention might complicate the extraction of information from movements in market interest rates, especially at the maturity at which the ESCB would intervene. Intensive recourse to fine-tuning operations might also deprive regular refinancing operations and standing facilities of their signalling effect and be conducive to a centralisation of monetary policy operations;  •  provided they are set at a sufficient level, and include an averaging provision, reserve requirements constitute an efficient buffer against liquidity shocks ; this would help stabilize short-term interest rates over the maintenance period. In turn, setting a fairly high level of minimum reserves might require remunerating them in order not to induce significant delocation or disintermediation;  7 See the two EMI reports “The single monetary policy in Stage Three – Specification of the operational framework”, January 1997, and “The single monetary policy in Stage Three – General documentation on ESCB monetary policy instruments and procedures”, September 1997. BIS Review 112/1997  -7-  •  enhancing the signalling effect of the main refinancing operations should also contribute to lowering interest rate volatility. This may best be achieved through the normal conduct of fixed-rate tenders, which send clear signals to the market, rather than variable-rate tenders. The latter may nevertheless be useful in certain circumstances where the ESCB wishes to gauge market sentiment;  •  finally, the communication policy of the ESCB could also play a role in smoothing interest rate volatility. The ESCB will have to publish weekly a consolidated balance sheet.