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February 26, 2015

New Rules Spur a Humbling Overhaul of Wall St. Banks

“Nearly seven years after the financial crisis, banks are still churning out profits and wrestling with regulators.

“Yet Wall Street, by many important measures, appears to be in the middle of a humbling transformation.

“Bonuses are shrinking. Revenue growth has stalled. Entire business lines are being cut. And some investors are even asking whether the biggest banks should be broken up — changes that are all largely attributed to a not-so-well-known set of rules regarding capital, a financial metric that captures how much cushion banks might have in the event of a crisis.

“We have substantially reduced the amount of risk they can take,” said Timothy Geithner, the former Treasury secretary. “We’ve cut the profitability of banking roughly in half.”

“At an industry gathering of Wall Street executives last week, the conversation returned again and again to the big changes already underway — and those yet to come — that have hollowed out trading floors and office towers in Manhattan and Connecticut and taken the swagger out of an industry that has long defined New York.

“Take Goldman Sachs. It recently reported that the size of its balance sheet — all its loans and holdings — shrank 6 percent since 2010 and 24 percent since 2007, while the pay per employee fell 13 percent since 2010 and 43 percent since 2007.

“We have significantly adjusted both compensation levels and fixed expenses,” the chief executive of Goldman, Lloyd C. Blankfein, told the industry conference in Florida. “We have transformed the financial profile of the firm.”

“The decline of these important measures has been largely overlooked partly because the banks successfully fended off more radical proposed changes after the crisis and have recently beaten back some signature elements of the 2010 Dodd-Frank overhaul. And profits at the banks have remained high. JPMorgan Chase recently turned in its largest annual profit ever.”

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Read the full New York Times article by Nathaniel Popper and Peter Eavis here.

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