Local developments rely less on out-of-state banks

Banking and finance could be deemed the lifeblood of the economy. In principles of economics, we teach that once an economy moves beyond the barter stage, money becomes the lubricant that keeps the machine moving.
The banking and finance sector, working with the Federal Reserve system and the Treasury Department, controls the flow of money.
For purposes of this column, we include banking, credit agencies and security and commodity brokers in what we will refer to as the banking sector.
The banking sector sold almost $400 million of banking services in Northern Colorado in 1994, the latest year for which data for our model is available. Almost $165 million of that output was value added by employees and other factors of production (land, capital and entrepreneurship) in our economy. The banking sector contributed 1.95 percent of all value added in our economy in 1994.
The banking sector is the ninth-largest producer of nonlabor value added in our economy, about $60 million in 1994.
The banking sector employed 3,375 employees, 1.68 percent of employment in our economy. The sector paid $103 million in wages and salaries, 2.19 percent of total wage and salary compensation.
The percent of compensation is higher than percent of employment, indicating that wages in the sector are significantly higher than the average wage in our economy. The average wage in the sector is more than $30,000 per employee.
We have stated in an earlier column on economic indicators that the banking sector in the Northern Colorado economy is maturing, that less money for local development is imported and that local banks are doing a greater proportion of local development financing than they did 10 to 15 years ago.
What were the proportions in 1994? About $215 million of banking services were imported in 1994, more than one-half of the total output of the sector. At the same time, our banking sector was exporting about $44 million of services, $20 million to foreign destinations. There seems to be plenty of room for local growth in this sector, and we˜re definitely not a financial-services export center.
In which other sectors of our economy does the banking sector generate the most personal income, both indirectly via banking-sector purchases and induced via employee spending? Doctors and dentists benefit the most, receiving $8.8 million in personal income generated by the banking sector, its suppliers, and their employees˜ purchases.
Hospitals are close behind, with $7.6 million, followed by computers and data processing with $6.8 million, the U.S. Postal Service with $6.6 million and personnel-supply services with $5.4 million.
There are 32 sectors in our economy, which receive more than $1 million of personal income because of banking-sector activity.
If we look at employment, which other sectors of our economy have the most employees supported by the activities of the banking sector? The eating and drinking sector has 458 employees supported by the banking sector, reflecting meals and entertainment provided to bank employees, their suppliers and their employees.
Personnel-supply services have 425, followed by miscellaneous retail with 343, motor-freight transport/warehousing and hospitals, each with 211.
There are 19 sectors in our economy in which more than 100 employees are supported by the activities of the banking sector.
What sector in our economy is the largest user of banking services? The real estate sector buys $28 million of services from the banking sector, followed by the banking sector itself with $24 million, wholesale trade with $11 million and feedlots with $9 million.
The personal-income multiplier for the banking sector is 2.39, indicating that $1.39 of personal income is generated in the rest of the economy for each $1 of personal income paid in the banking sector. This is a relatively high personal-income multiplier; most sectors are less than 2.0.
Employees of the sector spend most of their higher wages on goods and services, generating income for other local residents.
The employment multiplier for the sector is 2.86, generating 1.86 jobs in the rest of the economy for each job in the banking sector. This multiplier is also relatively high, with most sectors less than 2.0.
The higher wages and large employment in this sector stimulates a lot of other economic activity in our economy, especially in the labor-intensive service sectors.
The value-added multiplier for the banking sector is 2.44; the banking sector generates $1.44 of new value in the rest of our economy for each $1 of new value created in the sector. The value-added multiplier is not very high, relative to other sectors, primarily because it is a service sector rather than a basic resource or manufacturing sector.
The banking sector is the 12th-largest source of indirect business taxes paid to government, paying about $15 million in 1994. This is far behind the $212 million paid in property and real-estate taxes paid.John Green is a consultant and economics professor at the University of Northern Colorado in Greeley. Eric Siverts is president of Fort Collins-based Siverts & Associates.