“Lean times” might be an overstatement, but for the past four years payrolls have shrunk at the world’s biggest banks, amid heightened regulatory standards and withering profits.
New data from the British research firm Coalition Ltd., reported by the Wall Street Journal, show a 20 percent decline in the number of workers at the largest 10 banks in the world since 2010. The decline in the banks' employment from 2013 to 2014 was 4 percent.
Banks are cutting back at trading desks where profits have declined, particularly in the fixed-income, currencies and commodities divisions, which used to pull in hefty sums at Wall Street firms. At the same time, banks have added muscle to their regulatory compliance and cybersecurity offices.
Meanwhile, bonuses and salaries have consistently shrunk amid stagnant or falling revenues. At Goldman Sachs, for example, average employee pay since 2009 has declined more than $100,000 to just under $400,000, according to the New York Times. At a recent industry conference, Goldman Chief Executive Lloyd Blankfein told fellow bankers, “We have significantly adjusted both compensation levels and fixed expenses…. We have transformed the financial profile of the firm.”
Though record profits at some banks suggest an industry on a tear, much of this growth owes to shrinking compensation and staff cutbacks.
The sea change stems in large part from post-crisis reforms. Banking legislation passed after the 2008 financial crisis has reined in risk-taking while central bank policies have tamed fixed-income markets like bonds and treasuries. Decreasingly volatile markets and higher regulatory hurdles have meant smaller profit margins at trading desks, particularly those in the fixed-income markets.
Some of the most consequential reforms are rules mandating increased capital requirements. Enshrined in the Dodd-Frank reform bill and recently solidified by the Federal Reserve, these regulations specify the amount of reserve equity – cash and other assets – a bank must maintain in proportion to its borrowed money. Stricter capital requirements mean Wall Street must add some $70 billion in assets to its books.
As Wall Street goliaths trim their payrolls, private equity firms have swooped in to recruit young talent. According to one study, around 36 percent of junior bankers moved on to private equity firms after at least two years in the business, compared to 28 percent who stayed at the same desk within their banks.
Still, financiers on the whole aren’t exactly hurting. Wall Street banks have boosted pay to younger bankers, and the average financial sector employee still makes nearly three times the typical American worker.