Foreign banks on Wall Street

Player utilities

Listen to the Story.

Audio Transcript:

MARCO WERMAN: Wall Street has changed a lot since the demise of giants like Lehman Brothers, Bear Stearns, and Merrill Lynch. Wall Street is still the heavyweight of financial markets but the last year has brought speculation that Wall Street's global dominance is waning and that foreign companies are taking business and talent away from the United States. We asked The World's Jason Margolis to look into that.

JASON MARGOLIS: If you walk past the old Lehman Brothers in New York the building is lit up in blue. That's the color of the London bank Barclay's which now owns a big part of the old Lehman Brothers. The Japanese also got in on the fire sale. The Japanese bank, Nomura, bought many of Lehman's assets in Europe, the Middle East, and Asia. In recent months foreign banks like Nomura have also been stealing away bankers from American firms. These changes prodded the New York Times this summer to ask could foreign banks one day do to Wall Street what Japan once did to Detroit? Douglas Rediker is a former investment banker and current director of the global financial initiative at the New America Foundation.

DOUGLAS REDIKER: New York and Wall Street for many years was the end all and be all of the global financial system. Clearly over the last 10, 15 � let's call it 15 years � London in particular but other global financial centers really raised their game and became not only financial centers but financial centers to rival and some might argue even surpass New York in certain core components of the global financial system.

MARGOLIS: Then its siphoning off of business has only become more pronounced this past year. Which cities and countries emerge as the strongest centers of finance? That depends on a lot of variables including how different countries impose regulations. It's relatively simple explains political economist, Alan Meltzer, at Carnegie Mellon University in Pittsburg.

ALAN MELTZER: If we regulate salaries and restrict our banks then certainly we'll lose a great deal of business.

MARGOLIS: The bottom line? Most bankers go where they can make the most money. That means where they can earn the biggest bonus. But bonuses may be in jeopardy in some places. Leaders from continental Europe want to curb banker bonuses. They say the prospect of a multi-million dollar bonus prods bankers to take huge unnecessary risks for personal gain. Leaders from the US and the UK agree that bonuses are out of whack. But they say individual compensation is not the main threat to the financial system. Treasury Secretary Timothy Geithner is calling for systemic changes requiring banks to hold more capital to limit the risk of failure. Richard Rosecrance at Harvard's Kennedy School of Government says if continental Europeans do limit bonuses that could shift the balance of power to back to US banks.

RICHARD ROSECRANCE: I think it's possible if one side has a legal framework and the other doesn't. You can certainly see executives leaving and going to where they can get higher returns but on the other hand I think corporate boards are now so careful of you know avoiding their executives getting disproportionate bonuses that de facto the difference wouldn't be very great. It would be a very limited flow from Europe to the United States because of this.

MARGOLIS: But for the banks these discussions are largely academic. Major banks are multi-nationals. Bankers may be going from American firms to Japanese ones but they're just walking across the street. Again Douglas Rediker.

REDIKER: US banks will operate in Asia and in Europe. European banks will operate in the US and Asia and it goes on and on.

MARGOLIS: So at the end of the day does it really matter if an American banker works for Barclay's, Namora, or Bank of America?


MARGOLIS: That's political economist Alan Meltzer. He compares the diffusion of Wall Street's power to the automobile industry.

MELTZER: Does it matter to anyone whether we buy cars made in the United States by Honda, Toyota, or Hyundai instead of cars made by General Motors and Chrysler? And my answer would be not much. People say well the profits on those companies will go to Japan or Korea and the answer to that is of course if you think that's a problem buy stock in Toyota or Honda and the profits come here.

MARGOLIS: But this is not a holy academic discussion. How might all these changes impact the rest of us who rely on banks for loans? Does it matter if our bank is headquartered in New York, Shanghai, or London? Again Douglas Rediker.

REDIKER: It shouldn't matter to you whether you're getting your money from Deutche Bank, Barclay's, Bank of America, or otherwise. A dollar form Bank of America and a dollar from Barclay's are not going to make one bit of difference to you as the recipient of that capital. The question is is the capital available? And one of the legacy's of the financial crisis is there are less banks out there doing business.

MARGOLIS: Fewer banks means less competition. That means banks may not need to offer hyper-competitive loans to get our business. Rediker says there's another reason why it's important for Americans that Wall Street hangs onto its dominance. US power in the last 60 years not only on military might and political heft but also heft but also on economics. If the center of finance isn't Wall Street this undoubtedly weakens US clout on the global stage. For The World I'm Jason Margolis.