When major industry layoffs occur, they generally signal important information about the state of our economy. Banks are making major staffing changes, resulting in the layoffs of thousands of employees already this year. More layoffs are on the way. With big banks quietly cutting more than 20,000 employees, it’s important to consider what’s prompting these layoffs.
According to Forbes’ 2023 Layoff Tracker, several big banks have made major layoffs. In May, First Citizens Bancshares laid off almost 500 Silicon Valley Bank employees in the commercial banking business. Wells Fargo laid off 100 employees in two September layoff rounds, then laid off another 100 Florida employees. In October, the bank announced it would lay off an additional 525 employees. Barclays also announced in October that it will lay off dozens of staff – about 3% of its U.S. consumer division – to cut costs.
There’s also a slew of investment banking layoffs, including Goldman Sachs cutting 3,200 jobs, Morgan Stanley laying off 3,000 by the end of June 2023, and Citi reporting 1,600 layoffs in the second quarter of 2023.
Several factors are driving the layoffs, but one of the major factors is the real estate market. As home prices soared, the U.S. Federal Reserve raised interest rates to try to keep home purchases and inflation in check. The higher interest rates reduce demand and slow big purchases, which helps to bring home prices back down.
But those higher interest rates also have the effect of reducing the number of mortgages that banks approve and provide to homebuyers. Early on in the pandemic, banks went on a hiring spree in an effort to keep up with the increased mortgage applications that resulted from the unprecedented hot real estate market. With mortgage application numbers dropping, banks no longer need those extra employees.
Additionally, consumers are falling behind on their credit card payments. According to data from the Federal Reserve Bank of New York, credit card delinquencies reached 7.2% in the second quarter of 2023, a rate that’s higher than pre-COVID rates. Auto loan delinquencies reached 7.3%, and credit card balances increased by $45 billion during the second quarter. With more consumers falling behind on their debt payments, banks may be feeling the financial squeeze of less income.
Artificial intelligence and automation play a role, too. The past year has demonstrated the increased capabilities of AI, and it’s also changed perspectives about what is or will be possible with technology. In the long-term, technology solutions are less expensive than employees, and banks may be laying off staff as technology increasingly steps up to the plate and offers more solutions.
Banks are also thinking about the financial uncertainty that we face in the future. A coming recession has frequently been predicted for 2023, and while unemployment rates are down, the volatile real estate market also adds uncertainty to banks’ futures and their profitability. In anticipation of potential financial issues, banks are tightening their belts, performing layoffs, and cutting down on expenses like employee payroll and benefits.
The current bank employee layoffs signal that our economy faces multiple challenges, from the high mortgage interest rates to the fact that consumers are falling behind on credit card and auto loan payments. While there’s some uncertainty surrounding our economy, it’s likely that as the economy stabilizes, banks will once again resume hiring.
Paige Cerulli Paige Cerulli is a freelance content writer and journalist who specializes in personal finance topics. She graduated from Westfield State University and brings more than a decade of professional writing experience to the ConsumerCoverage team. Paige’s work has appeared in outlets including USA Today, Business Insider, and more.