2012 was the second most profitable year in Wall Street’s history, with banks making north of $140 billion. Wall Street’s bonus pool, while not yet back to the heights it achieved before the financial crisis, is growing again, and the average cash bonus hit $121,900.
This is part and parcel of a longer trend on Wall Street, which has seen pay skyrocket as the financial industry was deregulated. According to Bloomberg News, Wall Street’s bonus pool has nearly quintupled since 1985, growing from $4 billion to more than $20 billion (in constant dollars):
Since 1985 the average securities industry bonus in the city has risen about four-fold. There’s a big jump from 1990 to 1991, when bonuses went from about $27,000 in real-dollar terms to $52,000, and a series of further increases from there. Bankers and traders in a bad year now earn much more than they did in a good one. You can see the chart to the right…Meanwhile, the bonus pool has risen in real-dollar terms from $4.1 billion to $20.1 billion.
One pernicious side effect of the near-constant growth in Wall Street bonuses is that regulators make vastly less money than those they are supposed to regulate. As a study in the Quarterly Journal of Economics, over the last few decades, it’s become “impossible for regulators to attract and retain highly skilled financial workers because they could not compete with private sector wages.”