Banking Assets to Employees Ratio

Besides the previously discussed equity multiplier, there are other measures of leverage that can help determine changes in the banking industry's risk profile through time. One ratio that does not strictly use the balance sheet for both the numerator and denominator, compares assets versus the number of employees.

Banking Assets to Employees Ratio

In the decades leading up to the 2008 financial crisis, the ratio steadily increased. This would be expected for two reasons. Gains in technology, infrastructure, and scale allows banks to work more efficiently and use a smaller workforce to manage a larger portfolio. Second, the nominal value of assets would be expected to rise through time alongside inflation. So, like GDP, one could say there is an inflationary component and a "real" component to growth.

Following the crisis, the ratio was flat for several years as banks grew their balance sheets more slowly and added more headcount in back office roles for compliance and regulatory purposes. In 2013, the ratio began to rise once again, however at a slower rate than before the crisis.

As mentioned, while there would be an inflationary component to the chart above, when adjusted by dividing by an inflationary index, the picture remains similar and the trends remain the same.

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