Will Market Volatility Change the Workforce Plans of Retail Banking?

The VIX is moving markedly higher and that means dramatic increases in financial market volatility.  What is the VIX and what impact does its movement have on the workforce plans of commercial banks?  As with most questions about economics, the answer is complicated. But we at the nextSource blog are here to deliver clarified perspectives on complicated subjects like this.

So, first, what’s the VIX? According to Investopedia.com, VIX is, “The ticker symbol for the Chicago Board Options Exchange Volatility Index, measuring the market’s expectation of 30-day volatility. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge.” Simply put, when the data reveals rising fear among investors, the VIX moves upwards, signaling increased uncertainty in the market. When the VIX is high, we typically see anxiety among investors leading to large sell-offs and then reactionary buying of the “dips”in prices.  The more the markets swing up and down, the greater the fear and uncertainty becomes, leading inevitably to corrections and crashes. When the VIX is low, we typically experience periods of steady wealth building as investors remain confidently invested and valuations on their positions increase.

With the above definition, we can engage in forecasting the effect the recent spike in the VIX will have on the banking industry’s workforce management strategies. An important distinction should be drawn here between retail banking (think: deposit accounts, credit cards, home mortgages, business lines of credit and anything else you’d find in your local bank branch) and investment banking (stocks, bonds, currency, and other speculative investments). For the purposes of this piece, we’re looking at the effects of volatility on the former.

A big jump in the VIX will definitely exert some influence over the workforce planning of retail banking organizations. However, unlike other industries that are disinclined to hire during periods of uncertainty, banking does not necessarily rein in hiring in times of volatility.  Rather, they simply shift the focus of their hiring in response to market volatility.  For example, when interest rates begin to fluctuate, banks may reassess how many resources they allocate to mortgage load underwriting.  If it seems like rates may swing widely, banks see the opportunity for selling more home mortgage refinancing loans and ramp up staffing accordingly.

High volatility can present the opportunity for expansion for some banks.  When extreme market fear creates a run on banks (as depositors seek to withdraw all their cash en masse) those that have over-leveraged their deposits find themselves in a liquidity crunch and as was the case in the Savings and Loan crisis of 1989, many banks find themselves insolvent.  For the surviving banks (typically the ones with more stringent capital requirements) this presents an opportunity to acquire former competitors at fire sale prices.  In these cases, hiring becomes an immediate priority.

Lastly, it is important to remember that for the largest retail banks, while volatility may impact on quarterly profitability in the short term, staying competitive for the long haul remains a top priority. This means continuing to field the most innovative products and services to the public as a strategy for attaining competitive advantage. For example, producing the latest, greatest mobile banking app is a powerful differentiator and provides a great advantage. Fluctuations in the market do not dissuade the largest banks from continuing to actively seek and hire top web and application development resources to propel these new, tech-rich marketing initiatives nor does it stop them from seeking additional resources to support national advertising, marketing, and sales campaigns.

To put it succinctly, most banks make money whether the economic environment is placid or panicked, booming or busting. They simply have different priorities to address depending on whether things are heading up or down. In every instance, the bank with the most flexible workforce management program will be most able to move quickly and in line with market movements to maintain competitive advantage.

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