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Does Big Finance Need to Be on Wall Street?

New York City needs to fix its regulatory and quality-of-life problems to retain a key industry that is being disrupted

Since the New York Stock and Exchange Board was incorporated over 200 years ago, New York City—specifically Wall Street—has been synonymous with finance. But from 2000-2016, finance jobs in the city dropped 30%. Recently, a group of financial associations blasted potential stock taxes (several are being debated in the state legislature) and threatened to reduce their presence in the city. But this dispute is just one of many complications in the city’s relationship with one of its flagship industries, and the city must address them if it wants to keep these jobs.

Market forces have had a decentralizing effect on the entire sector for some time. One factor is outsourcing—Deloitte statistics show that by 2007, 75% of financial service firms had offshored some function. The firm notes that “more than half the institutions reporting enjoyed savings of at least 40 percent for each business process offshored, although some processes had savings as high as 70 percent.”

A second factor is competition. An increasing number of financial transactions can be handled by the growing universe of “Fintech” applications, or automated options for investing and banking, such as PayPal or Bitcoin. As BuiltIn writes, “machine learning algorithms, blockchain and data science [can accommodate] everything from process credit risks to run hedge funds.” 

Fintech’s potential could impact many Wall Street functions, hurting the long-term competitiveness of institutional firms like Goldman Sachs and Bank of America. One analysis found that nearly 60 percent of banking customers utilized some sort of app-based service for financial dealings prior to 2020.

A third factor is retail investing, which is when non-professional investors forgo money managers and invest on their own, using intuitive brokerage platforms like Robinhood. Business Insider reports that 20-25% of daily trading activity is done off Wall Street in this way. 

Then there is the looming question of remote work once the COVID-19 pandemic ends. While companies are not fleeing New York, surveys find a preference for sustained “hybrid” arrangements. If firms have fewer in-office staff on any given day, that reduces the need to maintain large offices in an expensive city.

Still, the death of New York’s finance sector is not rendered inevitable by automation and offshoring, and these factors only explain part of the exodus.

When Wall Street financial management firm AllianceBernstein moved its headquarters from New York City to Nashville, CEO Seth Bernstein cited the cheaper cost of living, shorter commutes, and friendlier business climate as key benefits over New York. 

Indeed, New York’s middle- and even upper-middle-class earners struggle with local housing costs. The median rent in January 2020 was $3,000 per month, America’s second-highest. Nor do the suburbs offer much relief: median home prices in the Tri-State area range from $471,000 to over $590,000. Meanwhile, living costs are much cheaper in Tennessee, Florida, North Carolina, and other places where finance jobs have moved.  

The answer to this problem is clear: build more housing. Yet New York’s harsh, complex zoning makes this difficult.

Actually getting to work is hard, too. The city’s famed transit system has become increasingly unreliable, and extensions have become prohibitively expensive and lengthy. Drivers spend 13% of their time in traffic.

Moreover, in recent years crime rates have shot up, reversing decades of improvement. For last August, the NYPD recorded a 166% spike in shootings, 47% more murders, and 21.7% more burglaries.

Taxes add to the burden; New York State’s corporate tax rate is among the country’s highest. Businesses have long paid these taxes to take advantage of New York’s agglomeration effects, but declining quality of life may override these benefits. Add a stock tax of .5% on trades, and the state legislature will be targeting the finance industry in particular.

In 1983, The New York Times’ editorial board warned that “If a computer in Atlanta can execute stock trades…there is no compelling reason why the paperwork shouldn’t also be done in Atlanta...New York needs the securities industry more than the securities industry needs New York.” 

This is even truer today, as technology and globalization disrupt and democratize the industry. If, on top of this, Albany and city hall do things that make New York City difficult for financial firms, we will see a continued decline of Wall Street.

This article featured additional reporting from Market Urbanism Report content staffer Ethan Finlan.