THE continuing effect of the banking crisis and the financial downturn dealt a further blow yesterday to Scotland's reputation for financial services.

Both Edinburgh and Glasgow suffered a sharp drop in the league table of places to do business in, according to an international survey of finance sector professionals.

Glasgow dropped from 33rd place to 41, while Edinburgh dropped from 32 to 37 in the rankings. It is particularly galling that, despite the problems of the eurozone, these are the steepest falls of any centre in Europe, although the cities representing the weakest euro economies(Athens, Dublin, Milan, Madrid and Lisbon) have continued their slide down the rankings, as evidenced in the last report six months ago.

It is a measure of the competition for financial services that, although both dropped in the rankings, Edinburgh retained the same ratings points and Glasgow slipped by only one. They were overtaken by Amsterdam, Copenhagen, Dubai and Kuala Lumpur.

The Global Financial Centres Index (GFCI) survey combines objective factors such as office rents and transport infrastructure with the perceptions of finance professionals on the more volatile factors affecting the business environment, making it a sensitive barometer of the relative attractiveness of cities across the world.

While London remains in top place, just above New York, potential regulatory changes in the UK following the Vickers report into the banking industry could have a negative effect on UK centres. In addition, the threat of a financial transaction tax risks reducing competitiveness unless it is introduced in all financial centres. This is significant because taxation, both personal and corporate, was listed as by far the most important factor in terms of competitiveness.

In a global market, long-term commitment to financial services is also essential to providing confidence. Stability, transparency of regulation and lack of corruption are vital to confidence. Since these factors are now priorities for the UK regulatory regime, it is possible that Edinburgh and Glasgow could improve their position. Both Scottish cities are rated on the second tier of "transnational specialists" and share that profile with Beijing. That neatly underlines the global nature of competition between financial centres. While this survey, the 11th since the index began in 2008, shows a decline in the ratings of Asian/Pacific centres, particularly for Hong Kong, Shanghai and Beijing, this will probably be little more than a blip in a long-term trend. Although the future development of cities in mainland China must depend to some degree on relaxing currency controls, the rise of Asia looks inexorable. London has led the GFCI since its creation in 2007 but its top place will depend on regulation and taxation striking the right balance between anti-competitiveness and confidence-boosting stability. That is even more true for both Edinburgh and Glasgow, cities still absorbing the shocks of the banking crisis.