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The Pains of the Global Credit Crunch Are Particularly Acute in New York

The crisis at Bear Stearns shows the devastating consequences -- from bank failures to stricter regulation -- on the financial services industry of the subprime mess and global credit crisis, especially in the metropolitan New York region, are still unfolding.

If poet T.S. Eliot was correct when he identified April as the cruelest month, bankers should prepare for a whole lot more pain, because it's hard to imagine a month that could be any more distressing for the financial services industry than March 2008 has been. As the fallout from what has become

a global credit crisis spread through the industry -- highlighted [or low-lighted?] mid-month by the run on investment bank Bear Stearns and JPMorgan Chase's acquisition of the institution for the fire-sale price of $2 a share -- it was impossible not to be aware of the gloom and anxiety pervading the business.

That angst was especially prevalent in the state of New York, where 20 percent of the taxes are generated by financial services, according to Kathryn Wylde, president and CEO of the Partnership for New York City, a nonprofit organization that advocates for the business interests of the New York City and state economies. Noting that the financial services industry accounts for about 25 percent of the metropolitan region's economy, Wylde spoke about the future of New York as a financial center in the context of the current financial market turmoil at a March conference produced by the Financial Times -- "View From the Top: The Future of Financial Services."

Wylde identified the current regulatory and tax environments as detrimental to the region's future as the world's dominant financial center. But, as many of the speakers at the FT event noted, given the scope of the subprime and related credit crisis consequences, it is likely that financial institutions will be dealing with an even more complex regulatory regime, as central banks and politicians strive to repair market confidence. The challenge will be to find the right balance without unfortunate unintended consequences or what several presenters termed "moral hazard."

As speaker Rob Nichols, president and COO of the economic policy organization Financial Services Forum, noted, "Any time Congress legislates in the heat of the moment, interesting things can happen." And Angela Knight, CEO of the British Bankers Association, concurred, commenting, "I have real concern that in the rush to make changes, not enough attention [will be paid] to details," such as the fact that "management can always make bad decisions." It's a good thing that misery loves company.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio

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