New York - AFP
Faced with increased regulation beginning in 2017, the major US banks are taking a number of restructuring steps, shedding staff and some speculative businesses, and cutting bonuses.
Taking a machete to expenses, banks are speeding up disinvestments, trimming administrative budgets and turning to automation to replace employees in a broad array of banking operations, including online.
The largest US bank in terms of assets, JPMorgan Chase, plans to save nearly $5 billion by 2017, and is closing 300 bank branches.
In 2014, Goldman Sachs's pay fell to the lowest level since the prestigious Wall Street investment bank went public in 1999.
To meet regulators' demands, the banking industry is also jettisoning lucrative assets and is trying to shrink certain deposits by charging institutional clients a fee to hold them, a move JPMorgan announced last week.
Goldman Sachs is scaling back holdings in investment funds and private-equity firms, a Goldman spokesman told AFP.
Morgan Stanley is lowering its profile in commodity and foreign-exchange trading and has put its oil trading unit on the market, preferring to focus on wealth management, a business with fewer risks.
Regulators have toughened their standards in a bid to avoid a repetition of the 2008 financial crisis that forced the US and other governments to bail out banks.
In their cross-hairs are the famous "too big to fail" financial institutions, considered a risk to the financial system.
The Basel III global regulations require banks to reinforce their own capital buffers, both in quality and in quantity, to represent a minimum 7.0 percent of their assets at all times. That formula means, for example, that for every $100 lent, $7 is the bank's own money.
Both the US central bank, the Federal Reserve, and the Financial Stability Board want a bigger buttress.
The FSB is seeking to require major global banks that are considered systemically important to hold a minimum capital cushion of 16-20 percent of their risk-weighted assets, or Total Loss Absorbency Capacity.
As for the Fed, it wants eight major US banks to be subject to a risk-based capital surcharge. Under the proposal, the central bank could prevent the banks from paying out dividends or repurchasing shares if the failed to comply.
"We want to pay our shareholders. We want to pay dividends, buybacks in a balanced way," JPMorgan spokesman Brian Marchiony told AFP.
Bank of America, in its 2014 annual report, said: "We continue to wind down our global principal investments operations."
Under the so-called Volcker rule in the Dodd-Frank Wall Street reform law, US banks are barred from proprietary trading, or trading with their own funds. The aim is to prevent the kind of excessive speculative behavior that threatens their stability, such as the "London Whale" trading debacle in 2012 that cost JPMorgan about $6 billion in losses.
- Questions about effectiveness -
"Is this really going to end the 'too big to fail'? I don't think so," said former banker Chris Whalen, of Kroll Bond Rating Agency. "The reality is that 'too big to fail' is about the payment system, it's not about capital."
Richard Bove, an analyst at Rafferty Capital Markets, said that in wanting to overly constrain the major banks the regulators have given them a competitive edge over medium-sized and small banks.
"The big banks have excess profits and they can use those excess profits to pay for the regulation," Bove said.
The New York state financial regulator, Benjamin Lawsky, himself acknowledged the competitive advantage favoring large banks in certain activities.
Lawsky, speaking at Columbia University in late February, recalled that a boss of a mid-sized bank had told him about the difficulties in facing this regulatory ramp-up, which was monopolizing significant human resources at the expense of the bank's normal activities.
"We must adjust. We should listen," Lawsky said.