Expense Reduction – An Exercise in Insanity

We all recall Albert Einstein’s definition of insanity - "Insanity is doing the same thing over and over again and expecting a different result."   

In April  Bearmoor had both the honor and pleasure of speaking at an industry trust conference, some of you were in attendance.  One item that we discussed is the level of attention being given to the area of expense reduction and/or management within banking organizations.  We continue to be amazed and after reading a story in the American Banker, we are even more baffled by the lack of attention given to the top-line revenue optimization.   The American Banker article titled - Bankers Swinging a BiggerAxe to Cut Expenses, discusses how smaller banks are struggling to keep efficiency ratios down, forcing many executives to look harder at closing branches and laying off employees.  The continued focus on expense reduction is analogous to the war on drugs here in the US – spending a tremendous amount of money to control the problem has only made it worse.  Perhaps it is time we try something different.  How about looking towards the optimization of top-line revenue within your fiduciary activities?

Below are a couple of graphs depicting the industry results  for income and expense associated with fiduciary activities.  The first graph shows the dollar amount of trust activity expenses trend line for the past eleven years – in 2011 the expenses associate with fiduciary activities reached a historical high, increasing 25% over year-end 2010.  The second graph compares income growth rates to expense growth rates for the same eleven year period.  You will see that expense outpaced income for six of the last nine years, and three of the last three.  I am not sure the focus on expense reduction is working here. 

Graph 1

Graph 2

I would enjoy hearing your thoughts on topic.