Monday’s announcement that two storied institutions, Bank of New York and Pittsburgh’s Mellon Financial, will merge to create one firm with $17 trillion in assets is an apt illustration of how changes in the financial services industry affect Gotham’s economy — and of how Gotham must work to make sure that industry keeps its global headquarters here.

First, some background: Bank of New York, established in 1784, is America’s oldest bank, founded by Alexander Hamilton, who became the nation’s first Treasury secretary. Mellon opened in Pittsburgh in 1869, and one of founder Thomas Mellon’s sons, Andrew, managed the bank through Pittsburgh’s industrial heyday and later also served as Treasury secretary.

The two banks plan to merge for two reasons. First, they want to cut costs within the larger of their two business lines, the boring but profitable task of asset custody.

As “custodians” of other financial firms’ assets, Bank of New York and Mellon are giant back offices to the rest of Wall Street, doing workaday tasks for big clients like mutual funds, pension funds, and hedge funds. This work includes processing stock trades, issuing dividend checks, and preparing statements for those clients’ individual customers. A customer who has a brokerage account at a small firm, for example, quite likely receives a statement prepared by a Bank of New York or Mellon subsidiary, not by his own firm.

After the merger, the Bank of New York Mellon Corporation will wring efficiencies out of this business, paring about 4,000 jobs, or about 10% of its workforce.

Second, the firms want to expand in the smaller of their two fields, the more glamorous business of asset management. Asset managers are different from custodians in that they advise their clients, including pension funds as well as wealthy individuals, on investment strategy. In fact, the Bank of New York bid for Mellon in large part because Mellon brings to the partnership nearly $1 trillion in managed assets.

What does this historic deal mean for New York?

First, although the Bank of New York says it’s too early to speculate, it seems more likely that New York will lose rather than gain middle-class jobs in the immediate cost cutting (lots of these jobs are already in New Jersey, anyway, but the firm has more than 8,000 workers in Lower Manhattan and Brooklyn). While Bank of New York Mellon will have its headquarters in New York, it will nevertheless maintain a “strong and growing presence” in Pittsburgh, including making it home to some combined divisions and adding as many as 2,000 jobs over the next few years. This decision makes sense, since the cost of doing business is cheaper there than here.

But New York will probably gain higher-end jobs in the long run in place of at least some of the middle-class jobs lost. Why? For one thing, doing Wall Street’s back-office work is technologically more challenging than it once was. As the Wall Street Journal reported Tuesday, the new Bank of New York Mellon must design and run sophisticated software to keep up with “increasingly complicated global investment strategies used by hedge funds and other sophisticated money managers.” For these innovations, the Bank of New York needs top-notch engineers. These well-paid workers more than pay for themselves (and the office space they use) through the productivity their creations generate. Talented people in this high-end field, as in other top fields, enjoy living and working in New York City.

There’s likely a second piece of good news for New York in the merger: As Bank of New York Mellon expands its high-end asset-management business, it will doubtless hire new highly paid workers here for that business, too. Bank of New York Mellon must have top people in Gotham if it wants to thrive in asset management, because the competitors, as well as many of the best potential employees, are here already.

In fact, the merger is likely to follow Gotham’s overall employment trend of the past several decades: While the city has a small and shrinking share of the nation’s securities-industry jobs, it has a large and growing share of American securities-industry wages. While today only 5% of Gotham’s workers make their living in the securities industry, they make more than 20% of the city’s wages, with an average salary of nearly $300,000.

But the merger highlights a more sobering trend, too: the growing weight of Europe and Asia in the financial markets. In fact, a quarter of Bank of New York Mellon’s revenues will come from outside America, and Tom Renyi, Bank of New York’s chief executive officer, said Monday that the international share of the combined firms’ business likely would grow.

Capital moves quickly, and for many reasons. One of those reasons, as the independent Committee on Capital Markets Regulation advisory body reported last week, is that American regulations on capital, including the 5-year-old Sarbanes-Oxley law, are cumbersome and costly compared to regulations in London and continental Europe.

So the merger should also serve to remind local and national politicians that they must fiercely guard the city’s reputation as the capital of capital — or financial firms that find they can’t beat the competition will simply join it.

Ms. Gelinas, a Chartered Financial Analyst, is a contributing editor at City Journal, from whose Web site this is adapted.