Farewell to 250,000 Bank Jobs
Warnings, lessons, and even some satisfaction can be gleaned from Andersen Consulting's prediction of 250,000 fewer banking jobs - a 20% drop - by the year 2000.
Some of the reasons for this conclusion, based on a survey of 250 CEOs and bank regulators, are pretty obvious.
* It is thought that there will be 25% fewer banks.
* Competition from money-market mutual funds and other nonbank savings products might well cut the percentage of household assets in bank accounts to 13% from 27%.
* Foreign banks are expected to increase their share of U.S. financial assets to 30% from 23%.
Fewer banks and less use of them mean fewer jobs. But the report also has other implications.
A Golden Age
One is that the number of bank jobs will decline partly because there were too many bank offices in much of the recent past.
Bank profits were high because of restricted competition, interest rate ceilings on savings, favorable tax laws, and an environment in which a bank was frequently its community's only source of funds.
Many banks were formed in this period because those already in business were making money. Many banks expanded - to provide additional services or simply because profits were so high that there was no need to keep close control over costs and employment.
Now all this is over. Competition is intense; cost control is a priority. While the economy is finding that it can do with far fewer banks, many banks are finding that they can do with far fewer employees
As the Andersen report concludes, this is a permanent change. "The golden age of banking will not return."
Did banks ever really need all those people?
Regardless of whether there are or were too many banks, many jobs within banks have been unnecessary.
Take lending officers.
The old advertising motto "We have to earn our wings every day" really does not apply to lending. Once a loan is placed on the books, it remains there regardless of whether the loan officer is around to monitor it.
Furthermore, many investments now offer more attractive yields than loans, are less risky, and don't need as much capital backing. No wonder banks are replacing lending officers with investment desks. One person with a network of phone lines can replace several loan officers in finding employment for funds.
The result: The Andersen study reports that a 20% decline is expected in the number of corporate lending officers.
What about operations?
Computerization has taught that we have to reduce duplication of effort. The modern bank tries to capture data at the point of entry - be it the new-accounts officer or the check reader - and to avoid handling data over and over again.
When we go to an airline counter, we want the clerk to handle the entire transaction, not to tell us it must be handled by a manager inside.
Banks are trying to gain the same efficiency. As they succeed, there will be less and less need for the ranks of middle managers and staff people who used to populate the back rooms and platforms. ATMs have further cut the personnel need.
The days when banks could afford the luxury of being overstaffed (because managers were judged by the number of people they supervised) are history.
Finally, in today's banking industry, individual banks can no longer afford to "reinvent the wheel."
Why should each institution have its own special operations procedures and software requirements? Banking is homogeneous enough that many banks can use the same procedures. The differentiation that wins or keeps customers is personal service, not the shape or form of the statement or lending documents.
The uniformity of the diesel locomotive saved the railroad industry, which had wasted fortunes when each line wanted its own special steam engine.
In the same way, banking is bound to develop common back-office procedures, either through cooperation or through outsourcing of back-office procedures.
Here, too, the job savings will be huge.
The loss of 250,000 jobs involves personal tragedy and unhappiness. But the reduction is bound to help the industry struggle back to health from its present sad state.
Mr. Nadler is a contributing editor of the American Banker and professor of finance at the Rutgers University Graduate School of Management.