BAHRAIN'S STATUS AS the Middle East's leading financial centre is about to face its toughest challenge. Dubai and Saudi Arabia are introducing new legislation that they hope will help create larger, more liquid capital markets and attract greater interest from investment banks and asset managers.
Although publicly all three jurisdictions insist that they will complement each other and are not in competition, the Gulf market is only big enough for one dominant player. All three jurisdictions have launched recent initiatives to try to claim this position.
Banks' choices of location are sure to be affected by the recent terrorist attacks in the region. Although Dubai has so far been unaffected, Bahrain has periodically been vulnerable to Shia unrest and Saudi Arabia has been hit by two car bomb attacks on expatriate residence compounds in Riyadh.
Privately, bankers say that financial factors, such as market liquidity, quality of regulation and proximity to the source of funds will drive long-term decisions.
Bahrain is long established as the region's financial centre and its regulatory system is widely respected. It has successfully diversified away from its original role as a recycler of petrodollars and the Bahrain Monetary Agency (BMA), the central bank, has taken responsibility for the whole financial sector.