Remember when politicians rushed to denounce the socially useless activities of the financial business? The pointless trading, the unnecessarily complexity of many instruments, the deceptive transfer of risks, the no-value-added research – the finance industry had grown much too large. As the crisis broke four years ago, a major cull looked all but inevitable. It hasn't happened.
Yes, pay is down. Yes, headcount is down and cuts keep coming. But the number of people on the U.K. Financial Services Authority's list of "approved professionals" has only declined 10 per cent from its peak in February 2008. Of course, that is an imperfect indicator: the U.K. is only one country, many professionals aren't approved by the FSA and some people on the list are out of work. But the latest Reuters count of announced bank job cuts comes to an even more modest reduction: 5.5 per cent of the total employment at 28 institutions worldwide.
When institutions are in real existential trouble, they get rid of far more than 10 per cent of their workers. Banco de Valencia, a troubled Spanish bank which was taken over by a larger rival, is about to fire half the workforce, the workers' union reported. The City and Wall Street could probably shrink to less half their peak size without doing any economic damage – outside of the financial sector and its tributaries.
But for the finance business, the crisis has actually been muted, despite some stirring rhetoric. The world remains heavily leveraged, professionals continue to strive for unrealistic returns and there is still some money to be made in rapid trading. Until and unless those conditions change, the right-sizing of the City will remain a work in progress.