It will be virtually impossible for New York to recapture the banking business that has recently moved away from the US to places such as London, a senior US banker warned on Thursday.
The best New York can hope for is to slow or stabilise this financial flight by implementing regulatory reform, said Thomas Russo, vice-chairman of Lehman Brothers.
“The key question is whether this trend can be slowed or stabilised. There is some chance of that. But it probably cannot be reversed,” he said, speaking on the fringes of the annual World Economic Forum in Davos. “That means we will pay a price in jobs, just as we are seeing with the auto sector. Once you lose something, it is very hard to get it back.”
Mr Russo’s comments follow the publication of a report by McKinsey this week which warned that, if trends continued, New York could lose up to 7 percentage points of its share, equivalent to 60,000 jobs, over the next five years.
Michael Bloomberg, New York mayor, and Chuck Schumer, a senior senator, who commissioned the report, said much of this decline could be stemmed if the US implemented regulatory reforms.
But they conceded New York was likely to lose market share as a result of growth in capital markets overseas.
Mr Russo was a member of a panel of academics and Wall Street leaders who recently called for similar changes to prevent the US “losing its leading competitive position as compared to stock markets and financial centres abroad”.
Mr Russo’s comments echo warnings from other Wall Street figures. John Thain, chief executive of the New York Stock Exchange, said last year that “if we are not careful, we will make the US less attractive to the world”.
Chuck Prince, chief executive of Citigroup, recently forecast a continued “diffusion away from New York as a centre of financial activity”.
Senior investment bankers, regulators and lawyers who took part in private meetings at the Davos forum on Thursday said a key factor was the US’s regulatory regime, which is fragmented and run according to a “rule-based” approach, which relies heavily on litigation.
Several bankers suggested that the best solution would be for US regulators to copy the UK’s Financial Services Authority by implementing a principles-based approach.
A move to a more principles-based approach has the backing of Hank Paulson, US Treasury secretary and former chief executive of Goldman Sachs.