Building a Scaleable Banking Organizaton
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Overview: Compensation expense accounted for about 44 percent of operating costs for the U.S. banking industry as a whole through March 31, 2009. It is, by far, the largest controllable expense category in most financial institutions and is an obvious target for potential savings during an economic downturn. True to form in a recession, overall employment declined by nearly 98,000 full-time equivalent positions, or 4.4 percent of the workforce, in the last 12 months in U.S. banks. Total compensation expense increased by just one-half of a percent year-over-year. During that same period, assets and deposits in FDIC-insured institutions increased percentage points by 1.3 and 4.5 respectively. Whether these reductions in force are aligned with changes in transaction volumes and declining demand for customer service is not at all clear, regardless of the increase in loans and deposits. Herein lies the potential of damaging the banking franchise if poor decisions are made about staffing in this environment. As the economic slide continues, three types of reactions across the industry are notable. This paper reviews industry trends in staffing, balance sheet composition and personnel productivity and explores the key steps to building and maintaining a scalable business model. These steps will position banks to respond effectively to changes in business volumes while satisfying profit objectives.