The financial industry is the biggest spender on technology in the US – so one might expect it to play a big role in any governmental push for innovation to spur productivity. Yes, the American financial sector spends the most on IT after the government, but it is being outpaced by competitors abroad and other industries at home. And market research shows that its spending is, increasingly, more about maintenance than innovation. This may partly explain why New York may be on the cusp of losing its claim as the world’s leading financial center. Yes, Wall Street still has the lion’s share of the stock market, with close to 30% of global equities, but initial public offerings and the issuance of derivatives have moved to Asia, and a well-regarded ranking, the Global Financial Centres Index (GFCI), places New York below London. That said, London’s lead slipped by five points as New York’s rose by two, in the September 2016 ranking, post-Brexit. Britain’s decision to exit the European Union has banks vowing to leave London. Prominent among them is HSBC, which had been persuaded by the British government, pre-Brexit, not to move its global headquarters to Hong Kong. Ranking fourth on the GFCI, Hong Kong, like Singapore in third place, is a likely future contender as top global financial hub. “New York is the big winner from Brexit,” says Larry Tabb, a capital markets expert who has testified before Congress. He foresees banks moving more of their business there, partly to avoid more onerous regulation in Europe, including MiFID II. “New York is where the largest businesses are and so it is the greatest locus for banking and investment.” Others express skepticism that European banks, saddled with Italian and Greek debt, can boost the US economy, leaving aside that the US is on a different currency and time zone. Either way, no one expects an imminent boost to US productivity from financial innovation. Although IDC put the industry’s IT spend at US$73.3 billion for this year and another research firm, Celent, estimates the US does almost one-third of the world’s banks’ spending on IT, US expenditure is slowing. Asia Pacific is growing fastest, at a rate 22% higher. This can’t all be explained by different rates of economic development – consider, for example, that in the US healthcare is outpacing finance at a similar clip, increasing IT spending by 5.6% in 2015 to banking’s 4.6% increase. Worse, many in the US banking industry say that the IT spending now being done is not innovative; it’s defensive. Indeed, a recent survey by a leading industry newspaper, American Banker, found regulatory compliance, followed by cyber security, tops US banks’ IT spending priorities. “Banks have not been innovating much since the crisis, just keeping up with regulations – everything from the Volker Rule to Basel III and Dodd Frank – and paying some ungodly amount in fines,” says Larry Tabb. Britain’s non-partisan CCP Research Foundation tallied banks’ post-crisis fines at more than a quarter of a trillion dollars. “We anticipate a roll-back of rules following Trump, and business-led tech will begin to grow again,” Tabb says. The Tabb Group focuses on securities and investment firms, where the falloff in IT expenditure is more apparent than among high street banks. Tabb’s annual survey of IT spending in capital markets anticipates 3% growth next year in the US, versus 3.7% global growth. One explanation is reduced use of derivatives, complex (perhaps too complex for their own good) financial products structured from loans. It was Wall Street that, decades ago, first thought to pool loans, then subdivide and recombine the income streams across many investors seeking different degrees of risk and return. Derivatives were implicated in the financial crisis and regulators largely shared Warren Buffet’s assessment of them as “weapons of mass destruction.” However, some contend derivatives are misunderstood and actually less risky than normal loans. That’s because they spread the risk and are structured to limit the exposure of each individual investor to a fraction of, say, a mortgage borrower assuming a whole loan or a bank granting it. That funding to power the economy is now gone, according to one veteran banker who prefers not to be named. “Derivatives don’t make shoes and cars,” he says. “But without cheap finance you won’t have enterprises taking the risk to make shoes and cars. “It’s whizz bang structured products that made New York the financial capital,” he adds. A survey by one trade title, Market Voice, finds North America’s share of the volume of derivatives fell to 33% of global market share in 2015, as Asia Pacific’s grew by 34% to 39% of the pie. Several sources questioned whether much of the financial industry’s use of technology is productive. “There is the idea that it’s a large casino. Some lose, some win, but it doesn’t add value,” said Robert Atkinson, founder of The Information Technology and Innovation Foundation, a think tank in Washington, DC. One exception to the shrinking rule is growth in the block-chain technology that underpins digital currencies, such as Bitcoin. Otherwise, tech experts agree that future financial IT will cut more than create jobs. Drive-by appraisers may become fly-by drones, investment managers robo-advisers, and stockbrokers, well, “They’re all going to be losing their jobs,” says Brian David Johnson. A futurist at Frost & Sullivan Research, he stresses that even coveted Wall Street jobs won’t be spared. Ultimately, national productivity should rise from increased service-sector output with fewer workers. Whether individual jobs are restored through further innovations is unknown. Innovation is on hold, as the veteran banker sees it: “Creativity is what humans are good at but, now, we don’t need to be creative.”