The Cost Of Regulating Financial Markets

According to a new report, securities laws and restrictions on the immigration of talented professionals are harming American equity markets:

Cumbersome securities regulation and immigration restrictions are diminishing the importance of the nation’s financial markets, according to a report by consulting firm McKinsey & Co. released yesterday.

New York City Mayor Michael R. Bloomberg (R) and Sen. Charles E. Schumer (D-N.Y.), who commissioned the report, warned that the country’s financial markets would be reduced to a mere regional financial center within a decade if certain government rules are not relaxed.

The report said there is “an urgent need for concerted but balanced action” at the national, state and local levels to enhance the competitiveness of the U.S. financial markets and “defend New York’s role as a global financial center.”

The report, “Sustaining New York’s and the U.S.’s Global Financial Services Leadership,” is one of several studies conducted as concern grows that the nation is losing its standing as global leader in finance. The report is based on interviews with more than 50 chief executives in the financial services industry and online surveys of hundreds of senior executives. The consulting firm also spoke with investor, labor and consumer groups.

According to the report, Europe is gaining on the United States in revenue from the lucrative investment banking and trading businesses. The U.S. exchanges’ share of initial public offerings has dwindled while those of its European and Asian counterparts have jumped. Europe’s revenue from derivatives already trumps that of the United States

And it’s not just regulation of financial markets that is having a negative impact:

The 145-page, $600,000 report emphasized immigration policy as a potential threat to New York City’s high-quality workforce. U.S. immigration laws, such as caps on H-1B visas for skilled workers, are making it harder for foreigners to move to the country, the report said. While London’s financial services sector grew by 4.3 percent from 2002 to 2005, New York City’s fell by 0.7 percent, a loss of more than 2,000 jobs.

Perhaps when people realize that there is a cost to be paid for all those regulations, they’ll think twice about them.

  • jgo

    I agree that the current excessive limits on H-1B visas is a threat to America’s high-quality work-force and make it too easy for foreigners to enter the USA without having passed — and paid for — a thorough background investigation. And it encourages the initiation of fraud by executives who claimed that there is a talent shortage when there is none (RAND Corp. and others); who claimed that they would only import the “best and brightest”, the “pre-eminent” but instead flooded the science, tech and other US job markets with less competent but cheap and easily brow-beaten bodies; who claimed that they would pay the guest-workers prevailing compensation but have been repeatedly found to under-pay them (by the GAO, and several university investigations).

  • Kim Berry

    It is absurd to cite an H-1b cap as the reason the New York financial center lost 2000 jobs between 2002 and 2005. a) Through 2003 the H-1b cap as 195,000 per year and not even reached. b) The unemployment rate of tech workers was rising during that time, as the number of jobs was falling. Doug: Perhaps the lingering DOT-COM bust and the offshoring of jobs and technology to India and China under the Bush “free trade” schemes are to blame?