The Profit Squeeze: A Post-Crisis Banking Struggle

Last week, I discussed the evolving challenges in retail banking. This week’s earnings reports from major institutions—JPMorgan, Bank of America, Wells Fargo, and Citigroup—confirm that the pressure on profits remains intense. Despite years of adaptation since the 2008 crisis and the implementation of Dodd-Frank, net interest margins and revenues continue to shrink.

This isn’t just a retail banking issue. Investment banks like Morgan Stanley and Goldman Sachs are also feeling the pinch. In response, banks are cutting costs—sometimes in absurd ways. Goldman, for instance, has laid off over 2,100 employees in the past nine months and imposed strict travel limits on executives unless they’re courting new clients. Meanwhile, some retail banks are reducing teller staff—ironically making it harder for customers to access services, which in turn, threatens retention.

This kind of cost-cutting highlights a fundamental disconnect in how banks operate. Banking is a client-based business. Without satisfied clients, there are no revenues to protect. Yet, by slashing client-facing roles or limiting relationship-building opportunities, banks are undermining their own sustainability. Cost-saving efforts are becoming self-defeating.

Short-Term Thinking vs Long-Term Value

In the years following the financial crisis, reducing expenses was necessary to maintain profitability. Many banks became leaner and more efficient, but there’s a limit to how far this can go. Once cuts start affecting client experience, they become damaging rather than helpful.

Retail banks, in particular, depend on convenience and customer trust. Yet, many rushed into digital banking without considering a large segment of their customer base—older, high-net-worth individuals who still prefer in-person service. JPMorgan recently had to rehire tellers due to rising complaints, illustrating how reactive and shortsighted cost-cutting can be.

Hiring and training new staff is not cheap. Replacing experienced employees with less expensive, inexperienced ones may look good on paper, but in practice it adds costs: recruiting, background checks, training, and lost productivity. These decisions often serve executive bonuses and quarterly shareholder expectations rather than long-term health.

At some point, cutting operational expenses becomes less about improving efficiency and more about trimming muscle. The truth is, short-term cost-cutting has reached diminishing returns. Many banks are starting to see that even aggressive reductions do little to lift the bottom line.

Digital Dreams and the Blockchain Disruption

One standout case is Bank of America. A recent Reuters article revealed that BofA spends roughly $1 billion annually just to transport cash and “shuffle papers.” Executives lament this cost as archaic in a digital age. Their vision aligns with a future where blockchain or central bank digital currencies (CBDCs) eliminate the need for armored trucks altogether.

And they’re not alone. The Bank of England has floated the idea of a centralized, distributed ledger—a form of digital banking that would significantly reduce the role of traditional commercial banks. In such a system, individuals could hold accounts directly with the central bank, making many current banking operations obsolete.

Of course, there’s a long road ahead before the U.S. adopts such a model, but it explains why nearly every major commercial bank has a dedicated blockchain research team. They’re trying to figure out how to remain relevant—and profitable—in a future where their traditional services might no longer be needed.

In theory, this could be the ultimate cost-cutting measure: if banks no longer exist, there’s nothing left to trim.

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