Many firms have already eliminated lower- and middle- management positions in response to competitive pressures. Though such actions probably improved the cost-efficiency ratios of banks and helped them meet earnings expectations, they also could, if not done carefully, increase the likelihood that new weaknesses will appear.
That is to say, institutions must take a sufficiently long-term perspective in their decisionmaking and not pursue purely short-term remedies to high operating costs. Banking is a highly leveraged and, in many respects, low-margin business. Losses from a single bad loan or a material breakdown in controls can eliminate the gain on many other transactions.