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.

Lloyd Blankfein, chief executive of Goldman Sachs, shares his thoughts on breaking up big banks.

Brady W. Dougan, the chief executive of Credit Suisse, one of the world’s biggest Wall Street banks, said considerations of capital were now a part of his everyday management of the bank.

“It’s become much more a game of driving the highest returns from the businesses that are most suited to the new environment,” he said.

Mr. Dougan is among the many Wall Street executives who say the new capital requirements have gone too far and have unintended consequences.

On the other side, critics of the banks like Sheila C. Bair, who was the chairwoman of the Federal Deposit Insurance Corporation, say all the rules have still forced the banks to cut only at the periphery. But Ms. Bair said that the capital rules were forcing the industry to answer hard questions for the first time.

“We haven’t had that kind of scrutiny in the past, and I think that is healthy,” Ms. Bair said. “It’s not a bad thing for the banks to have to deal with that sort of discipline.”

The New York Times