Over the last forty years, Luxembourg has become the financial hub in Europe and has served private and corporate clients all over the world, thanks to its extremely open market policy. The country’s financial sector is well-known globally for its expertise and sophistication. Even when most countries were suffering from the financial crisis, the banks in Luxembourg continued to earn substantial profits. According to a KPMG banking report, Luxembourg's bank profits grew by 42% in 2012. So, what has contributed to Luxembourg’s success in the global financial market and what is unique about Luxembourg’s banking industry?

The main reason why Luxembourg is Europe's main banking and financial center is that its banks have a high level of liquidity. What is unique about the banks in Luxembourg is that they have so many international clients and thus receive deposits from all over the world. Cash flows in and out very easily. This economic freedom has contributed to the multitude of ongoing banking activities in the country and has helped Luxembourg become the banking industry core in Europe. Moreover, because Luxembourg's economy is relatively small compared to other countries in Europe, the banks have significant money left over after meeting demand and often elect to invest this extra cash. These investments create job opportunities in Luxembourg's financial industry and boost the industry's growth.

Recently in Luxembourg, banks have been investing in government bonds with negative yields. When I visited BGL BNP Paribas in Luxembourg this summer, I learned of an interesting philosophy in the Luxembourg banking industry. The banks do not hold too much cash on hand and instead find different ways to invest in the market. Banks obviously did not expect returns from the government bond investments, yet they did it because they had an obligation to invest the money on hand. Politics definitely play a role in this abnormal financial activity, but certainly, the banks in Luxembourg have certain levels of social responsibilities. 

As a global hub for the financial industry, Luxembourg uses its innovation and open business culture to welcome clients from all over the world. The question is will Luxembourg's financial market continue to be dominant in the global financial market?

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