Will New York City Remain the Capital of Capital?

“Ultimately, the question asked today is the same one raised in the 1790s, the 1830s, the 1890s, the 1910s, and the 1930s: how can the city and the nation balance their own needs with those of a banking system that they cannot afford to be without?”—from Capital of Capital

As noted in Capital of Capital: Money, Banking, and Power in New York City, 1784-2012, according to the Z/Yen Group’s Global Financial Centres Index, New York City has slipped from its top position as the leading financial center, replaced by London. Here are the top 10 cities:

1. London
2. New York City
3. Hong Kong
4. Singapore
5. Tokyo
6. Zurich
7. Chicago
8. Shanghai
9. Seoul
10. Toronto

Will New York City reclaim its top position or slip further down as emerging economies become even bigger players in the global economy? In the conclusion to Capital of Capital, authors Lautin and Jaffe explore the challenges faced by New York City as the Capital of Capital as well as the city’s resiliency as a leading financial center:

If, despite traumas and changes, New York City endured as the nation’s financial headquarters, its identity as the world’s banking hub, a role it had played for decades, faced serious challenges in the new century. In the early 2000s, even before the meltdown, the city seemed to be losing out to global financial centers like Hong Kong, Singapore, and London. Press stories pointed to startling statistics: in 2007, less than 15 percent of the world’s new initial public offerings of stock shares were brought to market on one of the New York exchanges. As recently as the 1990s, that figure had topped 74 percent. And even though today most of the world’s biggest banks are located in Europe (the largest American bank, JPMorgan Chase, was number nine on that list in 2012), by 2050 the emerging economies of the developing world are expected to overtake the industrialized nations.

Post meltdown statistics suggested a mixed picture in which New York’s surviving commercial and investment banks remained central players in national and global finance, yet had plenty of com­pany. In 2009, the four largest American commercial banks—Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo—between them accounted for almost 40 percent of deposits and two-thirds of all credit cards in the country. Citigroup was New York City-based, the commercial division of the New York-based JPMorgan Chase was located in Chicago, and Bank of America remained headquar­tered in North Carolina and Wells Fargo in California. In worldwide investment banking, Wall Street still dominated in fee income (the revenues banks accrued by charging various fees to account holders, as opposed to revenues from interest on loans): in 2012, the top five earners (in descending order, JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, and the Merrill Lynch division of Bank of America) were all based in New York. Their aggregate fee income that year totaled over $17.5 billion, while the combined fee income of the next six high-earning banks (all of them German, Swiss, British, or Canadian) amounted to $11.4 billion. Another set of num­bers from 2012, however, told a somewhat different story. The list of the world’s 10 biggest banks measured by their assets included only one New York-based institution, JPMorgan Chase at number nine, with over $2.3 trillion in assets; by contrast, the largest bank, the Industrial and Commercial Bank of China, held over $2.7 tril­lion, and the other eight banks were all European or Asian. In sum, Beijing, London, Zurich, Geneva, Frankfurt, Tokyo, Paris, and other world cities were giving New York a run for its money.

In 2010, the historian Youssef Cassis argued that New York remained the world’s leading financial center, reflecting its tra­ditional role as the money capital of the United States; London was nipping at Gotham’s heels through its dominant position in international business; and Tokyo remained Asia’s leading finan­cial city. After these top three, six other cities—Frankfurt, Paris, Zurich, Geneva, Singapore, and Hong Kong—continued to flex their financial muscles. Another study by the Z/Yen Group, meanwhile, concluded that London was already pulling ahead of New York as a center of global financial competitiveness. In the future, the ongoing rise of China and other Asian economies and the impact of Basel III in reconfiguring the assets and income of banks globally may well continue to reshape New York’s position in the banking hierarchy. Although banking and finance today are conducted in ways that often make physical location seem trivial, the economic, social, and cultural impact of banks on their home cities, and the ways cities shape the banks within their boundaries, guarantee that New York’s role as a banking metropolis will continue to influence its identity.

It is impossible to foresee what the next century will bring to New York City as a capital of capital. For banks, the United States has the advantage of being a stable capitalist nation, and New York continues to be one of the world’s most desirable addresses. But his­tory shows that the future will most likely be shaped by how profit and risk are balanced, and how accountable the financial system is for its own actions. Ultimately, the question asked today is the same one raised in the 1790s, the 1830s, the 1890s, the 1910s, and the 1930s: how can the city and the nation balance their own needs with those of a banking system that they cannot afford to be without?