The global banking sector is in its biggest slump since 2008
The global banking sector just had one of its worst years since the 2008 financial crisis—that is, if you look at employment.
According to recent reports, 20 of the world’s largest banks reduced their overall headcount by a whopping 62,000 last year, reversing much of the job gains that followed from Covid lockdowns.
The biggest cuts came from UBS and its recently acquired Credit Suisse, which shed more than 13,000 jobs. The Financial Times reported that further layoffs are planned.
The job cuts weren’t limited to European banks, either. In the U.S., Wells Fargo laid off roughly 12,000 workers, while Citigroup, Morgan Stanley, Bank of America, and Goldman Sachs each shed more than 3,000 positions.
“There is no stability, no investment, no growth in most banks—and there are likely to be more job cuts,” Lee Thacker, owner of financial services recruiter Silvermine Partners, told FT.
Although several major banks booked massive profits in 2023, they’ve had to cut workforce because of overexpansion in recent years. Thacker said bank leaders are playing a game of “political cost-cutting” as top executives and shareholders call for more savings.
The pandemic aside, last year’s job losses rival only those seen during the 2008 financial crisis, when more than 140,000 positions were lost.
Creditnews has reported on growing volatility in some corners of the banking sector—specifically, those banks exposed to commercial real estate. But a closer look at the sector reveals that the volatilty doesn’t end there.
A string of bank crises
2023 was a volatile year for banks. What’s supposed to be one of the most stable parts of the economy was embroiled in a full-blow “liquidity crisis,” to use the U.S. government’s own words.
The turmoil reached front-page news last March when Silicon Valley Bank (SVB)—the 16th largest in the U.S.—experienced a classic bank run over fears that it was insolvent.
SVB’s collapse was truly jaw-dropping, as it had experienced massive growth in the previous two years. But that was before the Fed cranked up interest rates, which made the bank’s massive Treasury portfolio less valuable.
SVB’s collapse was followed by the failures of two other high-profile regional banks: Silvergate and Signature.
These banks are much smaller in scale than the aforementioned Bank of America and Wells Fargo, but they played an important role in the U.S. banking sector, such as providing funding to riskier startups and serving clients in the fintech sector.
The situation could’ve been much worse had U.S. regulators not stepped in. It took the full might of the Federal Reserve, Treasury Department, and Federal Deposit Insurance Corporation (FDIC) to convince the public that all their funds were safe.
In total, the U.S. suffered five bank failures in 2023. While that pales in comparison to the 389 failures between 2010 and 2012, last year’s collapses affected more assets than the height of the financial crisis, according to the FDIC.
According to the Stanford Institute for Economic Policy Research, more U.S. banks are at risk of a run because the actual value of their assets is $2.2 trillion lower than their stated value.
Volatility might not be over
Crises in the banking sector have forced regulators to have an uncomfortable conversation about the safety of customer deposits.
After SVB failed, the FDIC considered deposit insurance reforms such as increasing the insurance cap beyond $250,000 per account or simply extending unlimited deposit insurance for all accounts. The second option would basically mean customer deposits are insured against any bank failure, no matter the size.
The FDIC ultimately recommended that, for now, the best option is to provide certain business accounts with higher insurance protection so they could continue operating. However, the regulator acknowledged that this can’t be done without Congressional approval.
Although regulators were able to prevent an all-out bank run in 2023, the year ahead isn’t without its own risks.
According to S&P Global Ratings, a worsening global economy, rising corporate delinquencies, and a commercial real estate downturn pose serious threats to the banking sector in 2024.