The coming world of smaller banks – FT中文网

And then there are Bank of America and Citigroup, the two banks facing the most intense pressure from investors this week; together they employ more than half a million people. For now.

Typically, job cuts are good for shareholders because they reduce labour costs and improve efficiency. But these lay-offs have set off a labour-capital death spiral: they are bad for employees but are proving even worse for shareholders, and the declines in the share prices of banks are putting yet more pressure on employees and will probably lead to more lay-offs. And so on, and so on.

Most banking activity – lending, underwriting, mergers, sales, trading and wealth management – revolves around the allocation of capital. But over time, banks have expanded into riskier and more complex activities, including structured finance, derivatives trading and regulatory arbitrage, which can allocate capital in distorted ways. But even distorted capital allocation is still capital allocation; for better and worse, that is essentially what banks do.

The striking difference is that Google generates these numbers with fewer than 30,000 employees – not even as many people as HSBC is laying off.

Facebook and its peers also play an allocative function, just as banks do, except they help people move content instead of capital. Social network firms and banks both allocate information; in one case it is personal data and in the other it is money. As with Google, though, the employment numbers differ starkly. Facebook’s equity is worth more than that of most banks, yet it has just 2,000 employees.

Hedge funds take on traditional bank functions with a fraction of the employees.


via The coming world of smaller banks – FT中文网.

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