Economic Research Units Disbanded at Bank of New York and Chemical: Moves Follow Regional Banks' Lead toward Cost-Cutting and Decentralization
Sudo, Philip T., American Banker
NEW YORK -- Harry Truman once said he'd love to meet a one-armed economist because all the two-armed ones kept saying, "On the other hand, ..."
Like weathermen, economists have always been derided for their accuracy -- or lack thereof -- but this time, in the banking world, their employers are doing something about it.
In the last two years, a growing number of money center banks have decentralized or disbanded their economic research departments. Last week, Chemical Bank announced it was eliminating its department as a cost-cutting measure. Bank of New York said Friday that it, too, had begun phasing out its economic unit, and the department would be gone by Labor Day. Both banks said the employees and officers of those departments would be offered other positions within the organization.
"It's my impression that, indeed, that trend [toward decentralization] is going on," said Alfred C. Mosley, president of the Institute of Chartered Financial Analysts in Charlottesville, Va.
Most of the elimination has come in regional banks. "The ones that are left are in the money centers," Mr. Mosley said. But lately money center banks have begun to have the same thoughts.
"There is a general cost-cutting going on in the banking world, and economists have not illustrated their accuracy in forecasting things important to banks -- namely interest rates," Mr. Mosley said. "If the economist's batting average stays low, bank management is going to scratch its head and say, 'Do we really need this?'"
However, Chemical spokesman Kenneth Herz said of the department's disbandment, "It's not a reflection on the quality of their work. It's part of a corporate-wide effort to cut costs. We're not eliminating the use of economic research, just its centralized function. The emphasis is on finding cost-effective alternatives to a centralized staff that meet the same needs."
Scott Peterson, a spokesman for Bank of New York, said the bank began eliminating its economic research department six weeks ago. "The department was focusing on macroeconomics, national trends," he said. …