For decades, New Jersey and Connecticut have been poaching New York’s high-paying securities industry jobs, luring their prey with easier commutes, tax incentives, and cheap real estate. Today, Stamford, Conn., and Jersey City, N.J., are significant financial services hubs, and, to a degree, the tri-state financial services megaplex functions as an integrated whole. Many firms operate in both New York and its burbs—the front office downtown, the back office a Metro-North train away. The result: According to the Securities Industry Association, New York’s share of securities industry employment has fallen from 40 percent in the early ‘80s to about 25 percent today.
But at a time when New York is struggling to recover from the attacks of Sept. 11, 2001, a new, powerful force is pressuring financial firms to move jobs out of Lower Manhattan: the federal government.
Last summer, the Securities and Exchange Commission, the Federal Reserve Board, and the Treasury Department jointly (and quietly) published a disaster contingency plan—their post-9/11 ideas for protecting financial services in case of catastrophe. Among their recommendations: new regulations to require Wall Street companies to build backup facilities for processing and clearing of trades. To ensure their survival, these facilities should be at least 200 miles away from New York.
The logic of requiring more backups is unassailable. On Sept. 11, Wall Street firms lacked sufficient backup networks. Amid all the other disasters that day, the settlement of trades—the exchange of data or paperwork that completes the millions of transactions conducted daily—ground to a halt. The Bank of New York, which clears about half the trades in the government debt market, was out of commission for a few days, jeopardizing its financial health and creating massive headaches for an essential market. These proposed regulations are intended to prevent a replay.
Wall Street firms and trade groups have opposed the implementation of the proposed regulations, citing their cost. After all, many firms already maintain redundant space and have taken steps to decentralize operations throughout the tri-state area. That’s one of the reasons things went as smoothly as they did after the attacks. Virtually all companies were able to stay in the area. Many moved into big open spaces in Midtown Manhattan, while others doubled up in company facilities in New Jersey, Brooklyn, or Connecticut. Since returning to Manhattan, institutions ranging from the Bank of New York to the New York Stock Exchange have bolstered regional backup capabilities.
Even had they wanted to use the attacks as an excuse to leave Lower Manhattan and its comparatively high costs and damaged infrastructure, Wall Street firms would have had a tough time doing so. When companies were rallying around New York, it would have been bad form for any large securities firm to quit the region.
But the proposed regulation—which may not be codified until March—may force some companies to move operations and give other companies cover to do so. After all, if you have to build and staff a facility from scratch far away from New York, why bother to keep the one in New York? It’s a higher-cost operation. Every Wall Street firm is in cost-cutting mode. And blaming flight from New York on a federal mandate would certainly pre-empt the inevitable criticism.
Two enterprising reporters at Crain’s New York Business, Lore Croghan and Stephen Gandel, reported this week that the anticipation of the regulation is already pushing firms to act. The Bank of New York, they reported, is moving 80 clearing and settlement jobs to Orlando, Fla., and Morgan Stanley is shifting 150 jobs to Baltimore. Several hundred more Morgan Stanley jobs may follow. Meanwhile, J.P. Morgan Chase is scouting out a big block of space—500,000 square feet—in Florida. New York officials fear this could be the beginning of an exodus of some 15,000 jobs from New York.
New York can ill afford to lose these back-office jobs. These processing, record-keeping, and marketing positions are the unglamorous guts of the business. These jobs are held in the main by people who arrive from New Jersey, Staten Island, Brooklyn, and Queens on subways, ferries, and trains—not from the Upper East Side in Town Cars. They are the sort of good-paying professional jobs on which a thriving middle class is built. And it is these people who—if they’re lucky—may be offered a choice of relocating or losing their jobs.
One can understand the feds’ fears about the pre-9/11 lack of Wall Street redundancy. But the 200-mile limit seems arbitrary and practically designed to sap strength from the New York metropolitan area. After all, Brooklyn’s infrastructure, which is separated from Lower Manhattan by only a few hundred feet of the East River and is home to several firms’ back-office operations, was untouched on Sept. 11. Besides, a mere 150 miles puts in you in Pennsylvania Amish country, or in Albany, or in Delaware—all of which are sufficiently far from Manhattan to withstand the effects of an attack. And yet all are close enough so that companies could easily set up redundant facilities there, staff them on a minimal basis with existing workers, and rotate employees when needed.
Despite all the revenues it generates for the federal government, New York City doesn’t have many friends in today’s Washington. The support for the relief and rebuilding of Lower Manhattan has been grudging at best. (Remember when OMB Director Mitch Daniels Jr. added insult to injury by complaining about New York’s post-9/11 “money-grubbing”?) These regs may be well intentioned, but the city deserves better: a helping hand, not this punch in the gut.