Economic contribution of the New York financial services sector and review of the Stock Transfer Tax
SIFMA commissioned Ernst & Young LLP (EY US) to prepare this report, which presents estimates of the overall economic contribution…
The U.S. financial services industry is fundamental to our economy. It employs 9 million people and accounts for 8 per cent of GDP. It supports millions of families and small businesses and governments at all levels, local to federal. It does this by providing capital to households and businesses and through the provision of complementary services. The past year has also demonstrated how central to our livelihoods financial services are: financial firms have been integral in helping our communities mitigate many of the economic effects of the COVID-19 pandemic.
The financial services industry is also highly globalized. U.S. based financial firms export their services throughout the world and consistently record a trade surplus. Indeed, more U.S. jobs are dependent on exports of financial services than are dependent on exports of motor vehicles or computers. Financial services also operate directly in overseas markets through foreign direct investment. This investment is reciprocated by the $760bn invested in the U.S. by foreign banks, brokers and other institutions which collectively employ almost 400,000 workers in the United States.
Financial institutions provide capital to every sector of the U.S. economy. Through its investments in agriculture, manufacturing and other service industries, the positive impact of finance multiplies and helps generate much more in terms of growth and jobs than the financial sector accounts for directly. For example, for every job in the U.S. financial services industry, 3.6 jobs are created in the rest of the economy.
The international contribution of U.S. financial services goes beyond this. Globally active financial institutions are better placed to service clients in manufacturing, agriculture and other service industries. When invested abroad U.S. capital can help spread U.S. business practices, promote compliance with our standards and raise demand for U.S. exports. There is also a positive reinforcement between the reserve currency status of the dollar and the global presence of U.S. financial services firms.
In a world where the dynamics of economic leadership are fluid and evolving, the United States continues to lead the global economy in financial services. U.S. capital markets are the world’s largest, accounting for 41 percent of global equity and 40 percent of global fixed income markets; domestically they fund 72 percent of U.S. economic activity. Capital, raised through equity and debt, is fundamental to every single American’s livelihood and is used in every state, city and town to: grow businesses and payrolls; finance investments in new plants, equipment, and technology, and; fund infrastructure improvements. This enhances broad-based prosperity and helps to create well-paying jobs across a wide range of companies and industries, including small and mid-sized enterprises.
The U.S. financial services sector is also one of the world’s largest, serving as a source of strength for consumers, businesses, and communities across the globe. The global presence of U.S. finance also helps to promote a rules-based, open and competitive industry on the world stage.
Because capital markets and financial institutions are fundamental to saving, investment and job creation, they are essential to the recovery from the COVID-19 crisis in every sector of the U.S. economy. A robust financial system drives economic activity and job growth, diversifies risk, and supports financial stability.
The financial services industry contributes around 8 per cent of U.S. GDP. It employs almost 9 million people in the U.S., an increase of around 10 per cent over the past decade. Those jobs are widely distributed throughout the country with over 90 per cent located outside of New York State with, for example, 420,000 in Florida, 315,000 in Illinois, 585,000 in California and 591,000 in Texas. Many millions more jobs derive from the industry through multiplier effects: for every job in financial services there are around 3.6 jobs created elsewhere in the economy.
The financial services industry will also play a pivotal role in ensuring the future growth of our economy – and the international economy – is sustainable. The total size of the market for climate finance in 2018 (including mitigation and adaptation) was $600 billion and the banking and capital markets sector has made strong commitments toward achieving ambitious climate goals.
This includes commitments from banks to align portfolios with a pathway to net zero by 2050, as well as financing targets linked to sustainability considerations. For example, an analysis of sustainable finance commitments made by banks globally shows at least $4 trillion worth of total sustainable finance commitments made for varying time frames (typically over the next 5–10 years), which translates to approximately $700 billion in terms of annual commitments toward sustainable finance.