‘Too Big to Fail’ Pays Off: Big Bank Salaries Rising Faster than Rivals

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The pay bonus for working at a “Too Big to Fail” bank is only getting bigger.

Outsized paychecks are often cited as one of the reasons for the financial crisis. So what are the executives at the biggest banks doing? They are upping their pay. In fact, pay at the big banks is not rising just for CEOs and investment bankers but for everyone.

According to a new study by bank research website, BankRegData.com, the gap between what the largest banks pay and their smaller rivals has risen dramatically since the financial crisis. Last year, the average compensation expense (salary plus benefits) at banks with at least $1 trillion in loans for all employee was 96,355. That compares to pay of $60,755 at banks with less than $100 million in loans.

Of course, large banks have always paid more than smaller banks. But, recently, big banks have been upping their pay much faster than their smaller rivals. Last year, pay at the largest banks rose 6.7%, far more than the 3.7% hike in pay that employees at other banks received. And that was on top of 9% pay raise in 2009 for the big banks. The result: Last year, the salaries at the big banks were 59% higher than those being paid by their much smaller rivals. That’s up from a pay gap of just 43% in 2008.

Among the big banks, the best paying firm is JPMorgan Chase, which handed out an average compensation of $114,000 to its employees in 2010. Wells Fargo’s employees received $99,000. While the average employee at Bank of America took home $95,000 in pay and benefits. Citigroup, which was the bank closest to failing in the financial crisis, is the only firm among the big banks to pay less than many of its smaller rivals. Compensation at Citi averaged just $76,000.

Bill Moreland, who runs BankRegData, says it is not immediately clear why the big banks would pay so much more on average than the smaller ones. While big banks do have investment banking arms and other executive positions that command high salaries, they also have larger call center, collections department and branch staff, which Moreland figures should balance out the pay. But it doesn’t. What’s more, Moreland contends, the performance of the big banks doesn’t seem to warrant outsized pay either. He says the large banks have on average done a worse job of managing their delinquent loans than smaller banks. Net interest margins, a key measure of profitability at a bank, are about the same at the large banks as they are at the small ones.

So what accounts for the bigger pay checks? Moreland is stumped. But here’s one guess: The bank bailouts. Being “Too Big To Fail” seems to have lowered the borrowing costs of the largest banks in the nation. A government backstop makes the big banks less risky. It may also allow them to pay more. If the government is coming to the rescue, then the banks can put less of their money in reserve for a rainy day and pay more of it out today in compensation. Of course, new regulations and regulatory scrutiny upping the amount of capital big banks have to hold was supposed to be another check on risk taking and pay. But at least on the pay side, those new regulations don’t seem to be working.

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