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Is a career in banking a good investment?

The banking industry is in tumult. Commercial banks are failing, acquiring other banks, or being acquired. Insolvent savings and loans are being taken over by the Federal Government and sold or liquidated. Traditional banks are feeling intense competition from mutual funds, security and commodity brokers, foreign banks, business and personal credit institutions, real estate investment trusts, credit unions, and a host of other financial institutions. If you are considering a career in the banking industry, it can all seem very confusing.

Doomsayers claim that the trends in the banking industry will lead to massive consolidation and severely curtail employment opportunities. However, BLS employment projections indicate that, despite industry consolidation and a slowdown in job growth, the banking industry will provide many job opportunities throughout the next decade.

Banks With Tellers--and Without Them

Commercial banks and savings and loans usually come to mind first when one thinks of the banking industry. And with good reason. They make up the bulk of employment. (See table 1.) But they are not the whole industry. The banking industry has two major sectors--depository and nondepository institutions. As the names imply, depository institutions accept deposits, and nondepository institutions do not. Besides commercial banks and savings institutions, depository institutions also include credit unions, Federal Reserve Banks, and branch offices of foreign banks. The vast majority of these are commercial banks and savings and loan associations, which accounted for 59 percent and 17 percent, respectively, of banking industry jobs in 1990. Savings and loan associations alone employed more workers than all nondepository institutions combined, and commercial banks employed over four times as many. [TABULAR DATA 1 OMITTED]

Commercial banks are usually owned by shareholders. Individual banks offer widely different services and continually adapt them to their customers' needs. Services range from individual checking and savings accounts to money market and individual retirement accounts to loans. These banks lend money to business, educational, religious, and other organizations; they also lend money to individuals to purchase homes, automobiles, and household items, and to cover unexpected financial needs. In fact, banks loan out almost all of the money deposited in them, and the interest on these loans is their major source of revenue. (Banks do not need to keep enough cash to repay all their depositors' claims at once, because few depositors will request their money back on any given day.) Banks also safeguard money and valuables by renting safe-deposit boxes; administer trusts and personal estates; and offer charge cards, accounting and billing services, and money management counseling.

Although they make up the second largest component of the industry, savings and loan associations number far fewer than commercial banks. They are owned by their depositors, who receive profits in the form of interest on their deposits. Savings and loans are a chief source of home mortgages, which make up a smaller percentage of business for commercial banks. They lend money to businesses only for construction.

Other depository institutions include credit unions, central reserve depository institutions, foreign banks, and organizations that perform functions related to banking. Altogether, these institutions provided about 10 percent of banking industry jobs in 1990. By law, credit unions are banking institutions formed by people with a common bond.

For example, the credit union's members might work for the same company, hold the same type of job, or belong to the same religious institution. The members pool their savings, so that when one needs money--to purchase a home or car or to consolidate debts, for example--he or she may borrow from the credit union. Credit unions are nonprofit organizations and, as a result, often offer loans at a lower rate of interest than traditional banks. Besides making loans, credit unions also offer money market funds and certificates of deposit.

Central reserve depositories are Federal Government institutions. They include Federal Reserve Banks, the Office of Thrift Supervision, the Resolution Trust Corporation, and the National Credit Union Administration. They play a vital role in our Nation's banking system by providing credit and holding deposits and reserves for commercial banks, savings and loans, and credit unions. Central reserve depository institutions generally do not receive deposits from or make loans to individuals or other companies.

The 13 Federal Reserve Banks and their branches regulate commercial banks. They also control the Nation's money supply--the total quantity of money in the country, including cash and deposits. Federal Reserve Banks carry out the Government's monetary policy, usually by purchasing or selling Government securities. They also make emergency loans to banks that are short of cash and serve as a clearinghouse for checks.

The 1989 Financial Institutions Reform, Recovery, and Enforcement Act replaced the Federal Home Loan Bank Board--which formerly regulated savings institutions--with the Resolution Trust Corporation, the Office of Thrift Supervision, and the Resolution Trust Oversight Board. The Resolution Trust Corporation assists in liquidating the assets of insolvent savings institutions. The other organizations monitor and regulate the Nation's existing savings and loans. The National Credit Union Administration regulates and oversees credit unions.

Foreign banks include two types of institutions: (1) Branches or agencies of foreign banks that specialize in commercial loans and (2) establishments of foreign trade companies under Federal or State charter that finance foreign trade. Other companies that perform functions closely related to banking include check clearinghouse associations, check cashing agencies, electronic funds transfer networks, safe deposit companies, and companies that issue money orders and travelers' checks. (Additional information on depository institutions appears in the 1992-93 Career Guide to Industries.)

Nondepository institutions, which accounted for 14 percent of banking jobs in 1990, include mortgage bankers and brokers, personal credit institutions, and business and Federal credit institutions. Mortgage bankers originate mortgages, service them, and sell them to investors. Mortgage brokers arrange loans for others for a commission or fee. Personal credit institutions include companies that provide financing for automobiles and other consumer items, such as furniture and appliances. Business and Federal credit institutions, which expanded rapidly during the 1970's and 1980's, have become an integral part of our banking system. Business credit institutions make loans to agricultural and other business enterprises, while Federal credit institutions guarantee, insure, and make loans. For example, Congress established the National Mortgage Association to stimulate the purchase of existing and new homes and the Student Loan Marketing Association to finance student loans. Similar institutions include the Commodity Credit Corporation, Export-Import Bank, Farmers Home Administration, Federal National Mortgage Association, and Synthetic Fuels Corporation.

Occupations in Banking

The occupations found in depository and nondepository institutions reflect the different functions of these two sectors of the banking industry. Although many of the same occupations are found in each sector, they are distributed differently within each. Depository institutions generally process large numbers of transactions. As a result, they need a larger percentage of administrative support workers, especially bank tellers, than do nondepository institutions. Bank tellers and new accounts clerks made up 22 percent and 5 percent, respectively, of depository institution workers in 1990; but, these occupations were relatively insignificant in nondepository institutions. Depository institutions also need more clerical supervisors to manage the huge numbers of administrative support workers. On the other hand, work in nondepository institutions centers on making loans; therefore, credit authorizers, credit checkers, and loan and credit clerks accounted for 15 percent of employment in this sector, compared to only 6 percent in depository institutions. Similarly, loan officers and counselors held 12 percent of all jobs in nondepository institutions, compared to 5 percent in depository institutions. Table 2 shows the key occupations in each sector, their relative shares of employment, and projected growth to 2005.

Most business in the banking industry consists of simple financial transactions and, as a result, bank tellers are by far the most prevalent occupation; in 1990, the employment of bank tellers alone far outnumbered total employment in nondepository institutions. Bank tellers handle routine transactions, such as cashing checks, accepting deposits, processing withdrawals, selling travelers' checks, accepting payment for utility bills, stocking automatic teller machines, exchanging domestic for foreign currency, accepting loan payments, and processing certificates of deposit. Because banks are always increasing the variety and complexity of the services they offer, some tellers also act as customer service representatives. They briefly explain the various financial services offered, and, if customers have further questions, refer them to more experienced customer service representatives or bank managers. New accounts clerks explain banking services and options to prospective customers and help them open or close accounts or apply for other services.

The second most common banking function is offering loans or other types of credit, and this too requires several specialized occupations. Loan officers and counselors evaluate loan applications for commercial or real estate loans, mortgages, or other types of loans, and then recommend approval or disapproval of the loans. Credit analysts assess financial statements or other credit data to determine the degree of risk in offering a loan. Credit authorizers, credit checkers, and loan and credit clerks aid individual customers or business establishments in filling out applications for mortgages, personal loans, car loans, commercial or real estate loans, or lines of credit. They also verify information and process the applications. Adjusters, investigators, and collectors primarily inform customers of delinquent loan payments and attempt to collect payment.

General managers are usually officers--such as presidents, vice presidents, or other officials--who oversee the entire operation of the bank, setting investment and lending policies. Financial managers may also act as department managers, branch managers, credit union managers, or savings and loan managers. They administer the bank's operations according to policy set by the board of directors, oversee individual departments, resolve customer problems, and manage the bank's investments. In some cases, they may advise firms or individuals on financial planning. Clerical supervisors manage the vast numbers of administrative support workers, including the secretaries, stenographers, typists, general office clerks, and bookkeeping, accounting, and auditing clerks. (Additional information on the nature of the work, job outlook, training requirements, earnings, and working conditions for many of the occupations mentioned in this section appears in the 1992-93 Occupational Outlook Handbook.)

Trends in Banking

You are probably aware that the banking industry is experiencing sweeping changes. Most notably, commercial banks and savings and loan associations are rapidly losing business to other financial institutions. These institutions are having difficulty attracting and retaining depositors. Consumers have transferred a great deal of money from passbook savings accounts offered by commercial banks and savings and loan associations into alternative investments or institutions, such as mutual funds, investment brokerage firms, or credit unions.

Mutual funds have attracted a rapidly increasing amount of investment dollars in recent years. Because the law prohibits banks from selling them, the success of mutual funds has steadily eroded bank deposits. Investment brokerage firms, which sell mutual funds, also offer cash reserve management accounts that pay interest on cash balances and provide a check clearing service, further cutting into traditional banking business.

Credit unions have also attracted a larger share of banking assets in recent years. Many customers feel that their deposits are safer in credit unions than in banks or savings institutions. Credit unions do not usually make risky loans. As a result, they have fewer delinquent loans. Also, they are nonprofit organizations and usually have lower operating costs, enabling them to pay members a higher dividend than a bank would pay in interest while charging lower interest for loans than a bank does.

Besides losing vital deposits to competitors, commercial banks and savings institutions are also making a declining proportion of loans. Personal credit institutions and mortgage bankers and brokers have increased their share of consumer loans, and some corporate giants are now making business loans--all at the expense of banks. In addition, several nonbank corporations have recently begun to offer credit cards, also reducing consumer lending from banks.

Unwise business practices have further damaged traditional banks. Many commercial banks and savings institutions made unsound loans that were not paid back or were renegotiated at terms more favorable to the borrower, further depleting bank profits. For example, many large national banks made loans to developing countries that could not be repaid under the original terms of the loan. Other banks made risky business loans by financing leveraged buyouts--providing newly formed corporations with the financing to take over existing corporations. Still other banks made loans to finance speculative real estate development. Eventually, the real estate market became overbuilt and overvalued, and the resulting defaults on real estate loans hurt many commercial banks and savings and loans. In fact, this has been the chief cause of failure or destabilization of many banks.

The savings and loan industry has also been by fraud and poor management. Since 1980, several thousand savings and loans have failed, and hundreds more are expected to failed in the next few years. The extended recession that started in July 1990 further contributed to the problems faced by banks.

All these problems of commercial banks and savings and loan associations have fostered industry consolidation. The Resolution Trust Corporation has liquidated, or sold, the assets of many insolvent savings and loans. Many other insolvent savings associations have been sold to healthy ones. In addition, there has recently been a wave of mergers in the commercial banking industry among both very large and smaller banks. This trend is expected to continue unabated for some time. By the end of the 1990's, there will likely be considerably fewer commercial banks and savings and loans, but those remaining should be much stronger.

Future of Banking Careers

In light of all of these problems and the continuing consolidation among commercial banks and savings and loans, you might assume that traditional banks will provide few employment opportunities throughout the next decade. You might also assume that nondepository institutions will not provide many opportunities either, because this is a small industry. Neither assumption, however, is correct. Because of both industry growth and the need to replace workers who leave their jobs to transfer to other occupations, go to school, assume household responsibilities, or retire, many job openings should become available in all types of banking institutions during the coming years.

Look again at table 1. It shows that employment in nondepository institutions is projected to grow a rapid 42 percent over the 1990-2005 period and provide 155,000 new jobs. Depository institutions are expected to grow much more slowly, only about 10 percent, but will add 230,000 jobs. Many more jobs will open up as the workers who now hold them switch occupations or leave the labor force.

Depository institutions are so large and numerous that even slow growth yields a large number of openings. Moreover, the crisis in the savings and loan industry will probably not cause as large an employment decline as might be expected. When a savings institution fails, all its employees do not leave the banking industry. For example, when a bank is sold, the new owner still needs many of the former workers to operate it. When deposits are sold, the purchasing bank gains customers and probably must hire new workers. Even when a bank is liquidated, the depositors (who are repaid) usually redeposit their money in another bank, creating demand for more workers.

A final reason that jobs will be numerous is that, although competition and the increasing complexity of banking will cause industry consolidation, the banks that emerge will add workers. When banks merge, the duties of many executive, administrative, managerial, and professional specialty workers are duplicated. Therefore, the consolidated bank probably will need fewer general managers and specialists in human resources, information services, legal issues, accounting, or credit approval. Similarly, when banks close one or more branches, they need fewer administrative support workers. However, once the gold dust settles, banks will need to add workers. For instance, banks will use more marketing and sales workers to compete with the financial services and loans offered by other institutions. As a result, marketing and sales workers are projected to be among the fastest growing occupations in both depository and nondepository institutions. (See table 2.) The number of financial managers in depository institutions will also grow more quickly than the rest of the sector as managing banks becomes more complex and banks increasingly focus on investment counseling. Banks' continuing reliance on technology will spur growth, for another occupation: computer, mathematical, and operations research analyst. It is projected to grow 63 percent, accounting for most of the growth among professional specialty occupations in the depository sector. [TABULAR DATA 2 OMITTED]

Of course, some occupations, especially administrative support occupations, will grow very slowly or even decline in the coming years. But even these occupations will provide many jobs. For instance, bank tellers, by far the largest occupation in the industry, is projected to decline due to consolidations and the prevalence of automatic teller machines, electronic funds transfers, and other technologies that reduce the need for human contact between customer and bank. Nonetheless, it has one of the highest turnover rates of any occupation and, as a result, banks will always hire tellers to meet replacement needs. Moreover, as technology reduces the amount of simple transactions that tellers perform, they will begin to take on more complex duties.

Despite all the turmoil in the banking industry, it will continue to provide many job openings. That's the bottom line.
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Author:Dillon, Hall; Shapiro, Douglas
Publication:Occupational Outlook Quarterly
Date:Dec 22, 1992
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