Despite women now making up a majority of total bank employees in the US, men significantly outnumber women in senior executive positions.
A recent report published by Moody’s on the composition of corporate boards and workforces across 72 US banks shows only a modest positive correlation between greater gender diversity and performance.
Yet previous studies by the International Monetary Fund have highlighted the benefits of putting more women on senior positions at banks, finding capital buffers were higher, non-performing loans ratios were lower and profitability was improved. Other studies suggest that more women in top positions can result in a lower tendency to commit fraud.
“It’s an issue that deserves a deep-dive analysis,” says Sadia Nabi, a senior analyst at Moody’s. “But the fact remains that almost three-quarters of corporate directors are men. Therefore, any correlation [in the data] does not necessarily equal causation.”
Women make up 40% of board members at the five leading US investment banks, compared with 24% at the regional banks
On average women make up 28% of the boards at US banks, according to the Moody’s report.
While the report does not establish any definitive correlation between greater gender diversity and key financial metrics — such as asset quality, capital and profitability — it does provide a baseline with which to begin monitoring the solvency and liquidity of institutions that are starting to prioritise diversity in top roles, compared to peer institutions with lower diversity, Ms Nabi says.
The ‘glass ceiling’
Women now represent more than half of US banks’ overall talent pool, according to the report. However, despite entry-level representation of 56% of the workforce, this does not translate evenly to the executive level (38%) or board level (28%).
“Despite women now making up a majority of total bank employees, men continue to significantly outnumber women in senior leadership positions,” she says.
Although the ‘glass ceiling’ holding women back from promotion to senior leadership positions has been well documented, the Moody’s report suggests such barriers remain in place.
One explanation is that women often end up working in disciplines and career paths that are less likely to groom employees for senior leadership roles. Further up the corporate ladder, women often hold roles in corporate support positions, such as human resources, legal or accounting.
“Line roles engaged more directly with revenue-generating functions are still mostly held by men,” Ms Nabi says. “And it is these roles that typically lead to senior management positions, especially at the C-suite level.”
Larger banks and diversity
The report highlights how larger banks with total assets in excess of $100bn tend to have more gender-diverse boards, executive teams and overall workforces.
This correlation between organisational size and gender diversity is particularly evident when comparing regional banks with the leading US global investment banks.
Women make up 40% of board members at the five leading US investment banks — JPMorgan Chase, Goldman Sachs, Bank of America Securities, Morgan Stanley and Citigroup — compared with 24% at regional banks across the country.
“The larger banks typically have greater resources, which provides the means, motivation and culture to pursue and inculcate diversity and inclusion initiatives,” Ms Nabi says.
“On top of this, institutional investors are increasingly factoring gender inclusivity into their assessment of corporate governance, and many larger US banks have operations in Europe, making them subject to stricter rules and quotas on diversity.”
Lack of transparency
Very few banks promote transparency of their gender-related diversity and inclusion policies and procedures, the report notes. Ms Nabi argues such disclosure is vital to assess the prospects for increased career mobility and facilitate change.
However, the introduction of various board diversity mandates on a state level may begin to make a difference.
In 2018, California passed a law requiring publicly held companies headquartered in the state to have at least one woman on their boards by the end of 2019. One or two additional female directors are required, depending on the size of the company, by the end of this year.
Washington state, meanwhile, passed a law last year (taking effect in January 2022) that requires boards of publicly traded companies to be at least 25% gender diverse. Other states, such as New York, have mandated studies on the number of female directors on the boards of companies incorporated in the state.
In August, the US Securities and Exchange Commission approved new Nasdaq rules that will require companies that list shares on its exchanges to meet key diversity targets, which would likely have an impact on banks. “The numbers [at present] are pretty dismal, but these mandates are likely to have an impact,” Ms Nabi says.
