The free market is not alive and well in central bank-protected banking, but it is at least alive. Big banks are cutting back pay scales to employees.
William Wright, who runs New Financial, a think-tank, has crunched the numbers on his website. He calculates that disclosed pay at big investment banks has dropped by more than a quarter since 2007; that the average compensation cost per employee fell another 6pc last year and is now down by 30pc since 2007 (after adjusting for inflation, it is down by more than 40pc); and that the compensation ratio (pay as a share of banks’ revenues) collapsed to 38pc last year, down from almost 50pc before the crisis. The shift has been dramatic, but has gone unnoticed among the massed ranks of banker-bashers.
Powerful forces have led to a collapse in pay in an industry that is adapting to a permanently changed regulatory environment and economy. Those who continue to claim that banks haven’t changed need to check their facts.
I would hardly describe this pay cut as a collapse. But at least it is a quiet warning: “You’re not worth as much to the economy as you thought you were.” Take away central bank bailouts, and they would be selling life insurance door to door.
