Schumer Does Study: Relax Immigration Rules or Face Ruin
New York leaders warn of Wall Street decline
Disclosure and migration laws are cited
By Jenny Anderson Published: January 22, 2007
NEW YORK: The United States must ease corporate disclosure rules, relax immigration rules and adopt international accounting standards if it is to retain its leadership in global financial markets, according to a report released Monday.
The report, commissioned by Mayor Michael Bloomberg of New York and Senator Charles Schumer, a New York Democrat, warns that the United States could lose 7 percent of the global financial services market over the next five years to European and Asian competitors if urgent measures are not taken to improve the business climate for foreign companies.
"The last thing that New York and the country, for that matter, need is to wake up one morning and find we are no longer the financial capital of the world," Schumer said.
The report focuses on easing or eliminating provisions of the Sarbanes-Oxley Act on corporate accounting practices for small and foreign companies — some steps that the U.S. Securities and Exchange Commission is now undertaking — and curbing securities-related litigation.
Although several studies have expressed concern that the United States is falling behind because of a burdensome legal and regulatory environment, the report adds dimensions to the debate, urging easier immigration rules on skilled professionals and the adoption of international accounting and capital adequacy standard.
Taking pre-emptive steps to address concerns about regulation and litigation might halt the country's loss of market share and add $15 billion to $30 billion in revenue in 2011 alone, the study says. It would also allow for the creation of 30,000 to 60,000 jobs in the securities sector.
The report, "Sustaining New York's and the U.S.'s Global Financial Services Leadership," was compiled by the management consulting firm McKinsey. It points out that the United States commands a declining share of the global market for initial public offerings.
It also examines the broader financial services arena, including the rapidly growing markets in derivatives and structured products, the loan market and the traditional markets in stocks and bonds.
In 2005, American investment banking and sales and trading revenue totaled $109 billion — $69 billion in sales and trading and $40 billion in investment banking — compared with $98 billion in Europe and $37 billion in Asia.
The United States remains the largest financial market in the world, as measured by what is called "financial stock" — equities, private debt, government debt and bank deposits — with $51 trillion in 2005, but its pace of growth was significantly slower than in other markets, especially the Asia-Pacific region (excluding Japan) and Britain.
Emerging markets will naturally grow faster than the more developed U.S. market. But spokesmen for Bloomberg and Schumer said the report aimed to address special U.S. factors like litigation and regulation that might deter foreign businesses.
Critics of easing regulatory standards and the ability to bring securities class- action lawsuits point out that litigation costs have been unusually high because of settlements related to the frauds that brought about the collapses of Enron and WorldCom. Europe has a larger share of some of the more innovative areas of finance, including derivatives, the report concludes. Europe has a 56 percent share of the $52 billion global revenue pool from derivatives and 60 percent or more of revenue in interest rates, foreign exchange, equity and fund- linked derivatives. The United States leads only in commodity derivatives.
Short-term recommendations include improved guidance on implementation of the Sarbanes-Oxley legislation, which tightened corporate accounting standards after the Enron and WorldCom scandals.
The report suggests that the Securities and Exchange Commission could use certain exemption powers to limit liability for foreign companies to securities-related damages and to impose caps on auditors' damages. It also recommends that the commission allow companies to mediate conflicts through arbitration rather than litigation.
McKinsey interviewed 50 financial services chief executives and business leaders, received surveys from 30 more financial services chief executives and polled 275 other senior executives.
The pace of job creation in London far outstripped that of New York City, the report says. From 2002 to 2005, London's financial services work force grew 4.3 percent to 318,000, while New York City's shrank 0.7 percent, or 2,000, to 328,400 jobs. London has been gaining an edge in attracting the largest hedge funds. In 2002, London was home to only three of the largest 50 hedge funds, compared with 12 today. Now, 18 of the largest 50 hedge funds are based in New York, compared with 28 in 2002. The neighboring state of Connecticut gained two over that period, for a total of eight.
Reiterating figures related to market share of global initial public offerings, the report says the United States controlled 16 percent of the global stock-offering volume, exceeding $1 billion, through the beginning of November 2006, compared with 57 percent in 2001. Europe's share has leaped from 33 percent in 2001 to 63 percent through the beginning of November.
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