FORTUNE -- Call it too big to succeed.
A report about the global banking industry by Boston Consulting Group, which was released on Tuesday, says new regulations and less business will force the big banks to dramatically shrink. Of the 28 global banks the consulting firm looked at, only a few of the leading players like -- Goldman Sachs (GS), Deutsche Bank (DB), and JPMorgan Chase (JPM) -- will be able to remain at their current size, according to BCG.
The others, which include such banking behemoths as Bank of America (BAC), Barclays (BCS), Citigroup (C), Credit Suisse (CS), and Morgan Stanley (MS), will have to exit businesses, eliminate staffers, and rethink what they do in order to survive.
Even so, BCG estimates the leading players still need to cut costs relative to income by 10% in order to hit profit targets. If profits don't increase, and cuts are spread evenly, that alone could mean an additional 40,000 in layoffs from the largest banks. For all the banks, BCG sees little in the way of revenue growth in the next year or so.
And that's under the current set of regulations. Last week, Senators Sherrod Brown and David Vitter proposed a new bill that would force a handful of large U.S. banks to roughly double the amount of capital they hold to cover bad loans and investments. There's a debate as to how much this would reduce the profits of the large banks. Philippe Morel, who led the team that put together the BCG report, calls Brown-Vitter and similar proposed regulations in Europe "weapons of mass destruction." Not even Goldman or JPMorgan would be able to survive at their current size.
There are some problems with the report. First of all, it's unlikely regulators, already under attack for allowing banks to remain too big to fail, would welcome a system in which just three banks dominate the world's financial markets. Second, the report looked at various Wall Street businesses based on their current profitability to determine whether banks would be able to stay in them under higher capital rules.
But those businesses may get much more profitable when the economy recovers, which will make them viable for more banks. And it's not clear that higher capital requirements would force banks out of certain businesses. Anat Admati, a Stanford economics professor and author of The Banker's New Clothes, says higher capital requirements will make banks safer, and as a result investors will still value those stocks even if profitability drops.
What's more, the report was focused on banks with investment banking and Wall Street-type businesses like underwriting and trading bonds, stocks, or structured financial instruments that allow others to bet on interest rates or commodity prices. That's where the bulk of new-post financial crisis rules are hitting the banks, and where business has dried up the most. So Wells Fargo (WFC), which is the nation's largest mortgage lender, fell out of the analysis. In fact, the report said that traditional lending could remain a large and profitable business for the largest banks.
But in the past decade or so there's been a rush, originally led by Citi's Sandy Weill, by the big banks to be able to do everything from provide checking accounts to derivatives. They said their Fortune 500 clients wanted it that way. And while some banks have retreated since the financial crisis, ironically with Citi having done it the most, they are still mostly pursuing the same do-it-all model. BCG's consultants say the big banks have only really gotten serious about right-sizing their business in the past year or so, and most still have a lot more to do.
"The real structural cost-cutting hasn't happened yet," says Shubh Saumya, a partner in BCG's capital markets practice. "It's been on the margin."
Update: An earlier version of this story stated that consultants at BCG thought certain large banks were likely to remain large, while other banks were likely to shrink. In fact, BCG was only offering examples of large banks that could be facing the choice of deciding whether or not to maintain their current size in the face of new regulations and lower demand for their capital market services.
A small Fed tax will do little to rein in big banks.
FORTUNE -- For the big banks, the Federal Reserve's stick remains pretty rubbery.
When Dodd-Frank, the banking reform law passed in the wake of the financial crisis, was originally envisioned, co-author Congressman Barney Frank, members of the Obama administration, and others believed the new rules would encourage banks to shrink by making it too expensive to remain big. That, they MOREStephen Gandel, senior editor - Apr 16, 2013 5:00 AM ET
Jamie Dimon needs to take a cue from J.P. Morgan's trading debacle and divide the banking giant into manageable pieces.
By Sheila Bair, contributor
FORTUNE – When I was a child, my sister and I loved watching the goings-on at a chicken farm near my grandmother's house in rural Kansas. Chickens are interesting social animals, resembling, somewhat, the way we in Washington interact with one another. They were always on the MOREMay 25, 2012 5:00 AM ET
JPMorgan CEO Jamie Dimon says his bank, the U.S.'s largest, may still be too small to succeed.
FORTUNE - Jamie Dimon can't be contained, at least not by Dodd-Frank.
At JPMorgan Chase's (JPM) annual investor day on Tuesday, CEO Dimon said he plans to continue to grow his bank, which is already the largest in the nation by assets, despite regulations and recent suggestions that JPMorgan might be worth more broken up. MOREStephen Gandel, senior editor - Feb 28, 2012 5:23 PM ET
Customers would benefit, the U.S. government would benefit, and - believe it or not - the big banks themselves would do better.
By Sheila Bair, contributor
FORTUNE -- America is downsizing. Whether it's the food we eat, the cars we drive, or the houses we live in, Americans are concluding that smaller is better. Even U.S. corporations are starting to see the benefit of more Lilliputian institutions; the impending -- and widely hailed MOREJan 18, 2012 10:56 AM ET
Deal talk has exchange stocks grooving. But more mergers spell disaster for markets already tilted dangerously in favor of big companies and fast traders.
Shares of NYSE Euronext (NYX) surged 14% Wednesday after the New York Stock Exchange parent said it was in advanced discussions to merge with Germany's biggest exchange, Deutsche Borse of Frankfurt. The talks come on the heels of this week's tie-up between the London Stock Exchange and Canada's TMX MOREColin Barr - Feb 9, 2011 2:12 PM ET
New York sued the giant accounting firm Ernst & Young Tuesday, saying it helped Lehman Brothers deceive investors about its true health for seven years.
The complaint, filed in state Supreme Court, seeks the repayment of at least $150 million in fees the audit firm collected between 2001, when Lehman's aggressive accounting began, and 2008, when the venerable bank collapsed, precipitating a global bank run.
"Our lawsuit seeks to recover the fees collected by MOREColin Barr - Dec 21, 2010 11:31 AM ET
A systemic risk council has the power to unwind banks that are too big to fail. Now we just have to figure out what that means.
By Heidi N. Moore, contributor
One example of the upside-down, through-the-looking-glass world of financial reform: We still don't know what "too big to fail" means, or what systemic risk is, but oh boy, now we sure do know who has the authority to decide. As usual, MOREJul 9, 2010 11:41 AM ET
There's an upside to the too-big-to-fail problem, believe it or not.
Do rising credit spreads and tumbling stock prices signal that the U.S. is in for another shock like the one that sent the economy into free fall in 2008?
Don't bet on it. While there are problems all over the globe and stocks could easily head still lower after a recent correction, there are signs the domestic economy is strong enough MOREColin Barr - May 25, 2010 2:48 PM ET
|Tesla repays federal loan nearly 10 years early|
|HP soars as Meg Whitman turnaround continues|
|How police can find your deleted text messages|
|Stocks slip as Fed sends mixed message|
|New Jersey's "Operation Swill" cracks down on alleged liquor substitution|