New Survey Shows Regulatory Reform Will Stifle Financial Markets Hiring for at Least One More Year

KPMG has a new survey out that pretty much sums up what we've all been dreading: faced with regulatory reform challenges and a stagnant economy, banking executives are focused on ways to increase operational efficiency and reduce costs. Translation: use fewer people to do more work. According to a recent survey, more than two out of three (69 percent) respondents said regulatory and legislative pressures are the most significant barrier to growth over the next year, while four out of five (43 percent) said they'll be spending most of their time and energy increasing operational efficiency and reducing costs in the next two years.

"Banks are still in recovery mode after the financial crisis and coming to grips with the new regulatory environment in which they now operate, which is impacting revenue and driving up compliance costs," said Brian Stephens, national leader of KPMG LLP's Banking and Capital Markets practice. "'The 'new normal' for the industry seems to be slow and steady growth as banking leaders streamline costs and evaluate strategies to drive future revenue."

According to the KPMG survey, banks are anticipating only modest headcount gains in the year ahead, with the number of banks adding to payrolls (39 percent) just slightly more than those cutting jobs (32 percent).

Stephens feels that hiring will more firmly take hold "when business conditions improve and loan demand picks up." In the past year, 44 percent of the banking executives said they reduced headcount and 31 percent said they added jobs. "Headcount increases and reductions will be sporadic and largely depend on the mix of businesses within each bank," said Stephens.

A year from now, only six percent of respondents expect revenue to be significantly higher with the majority (69 percent) seeing moderate revenue growth.

"Banking leaders understand that the focus on streamlining can only go so far and that growing the top line is critical as traditional banking services are not nearly as profitable," said Stephens.  "While bankers await an increase in loan demand, their growth strategies, operating models and products and services will continue to evolve in an environment that's plagued with lots of uncertainty around regulatory matters and the economy."

Investing in IT a Priority

When asked to identify the three areas where their bank would most increase spending over the next year, 58 percent of the KPMG survey respondents said information technology (IT), followed by new products or services (37 percent), acquisition of a business (32 percent) and business model transformation (20 percent).

Among those respondents who said their bank had significant cash on its balance sheets, the most likely time frame for investment was this year (39 percent) or next year (40 percent), while 21 percent said 2014 or later.

Platform simplification (IT infrastructure, applications) was identified by 58 percent of the banking executives as the most important IT-related project for their bank in the next year, followed by mobile payments (39 percent), leveraging data more effectively for regulatory requirements (38 percent) and creating an integrated view of customer accounts (37 percent).

A year from now, 69 percent of the respondents expect the U.S. economy to improve, but 71 percent do not expect the economy to recover as a whole until 2014 or later.