Market Strategy
by Talley Leger, Chief Market Strategist
October 23, 2026
Banking Sector Productivity: Facts, Not Forecasts
If you’re searching for signs of asset efficiency, structural scaling and operating leverage, look no further than the US banking sector. Indeed, the long-term trajectory of domestic banking operations shows a pronounced productivity pickup.
Specifically, average assets per employee is a key metric for measuring operational efficiency, capacity utilization and employee productivity in the banking sector. It calculates how many dollars of total assets (e.g., loans, securities, cash) that all FDIC-insured institutions manage relative to their full-time equivalent (FTE) workforce (see the chart below):
- Employee Productivity: A higher ratio means each employee is managing a larger book of business, signaling that banks are maximizing their labor resources.
- Expense Optimization: This metric provides context to a bank’s Overhead Ratio (Noninterest Expense to Average Assets). If personnel expenses are high but assets per employee are also high, banks may still be operating efficiently.
- Scale & Technology: Organizations with robust digital platforms typically show a higher Asset-to-Employee Ratio because automated workflows reduce the need for physical branch staffing.
Banks Manage Dramatically Larger Asset Bases with Disciplined Headcount
Sources: FDIC, WCG, 10/20/26. Notes: Vertical gray bands = US economic recessions. NBER = National Bureau of Economic Research. FDIC = Federal Deposit Insurance Corporation. The copper arrows indicate uptrends in technical analysis.
Zooming out, we see that average assets per employee have continued their remarkable climb, achieving a secular milestone of $13.0 million per employee across all insured institutions. Modern banking platforms generate significantly higher balance-sheet capacity per staff member, transforming traditional brick-and-mortar overhead into scalable digital revenue channels.
To wit, the multi-decade expansion in the Asset-to-Employee Ratio reflects more than mere balance sheet inflation. Rather, it highlights the profound impact of digital transformation, automated underwriting, streamlined compliance systems and the adoption of sophisticated industry-wide capital allocation strategies. The surge in per-employee leverage illustrates my tech “enablement” thesis at work – cloud platforms, automated loan underwriting and digital banking channels allow each employee to service a significantly higher volume of business transactions.
Improving Efficiency – Decreasing Expenses, Increasing Revenues
Sources: FDIC, WCG, 10/20/26.
Another way to evaluate US banking sector productivity and its direct link to technology investment and capital expenditure (capex) is the Efficiency Ratio, which measures how much an organization spends to generate a dollar of revenue:
Noninterest Expense / (Net Interest Income + Noninterest Income)
A lower efficiency ratio means the bank’s operating more cost-effectively because expenses capture a smaller percentage of revenues. If an institution has an efficiency ratio of 55.4%, it costs the bank $0.55 to generate $1.00 of revenues (see the chart above).
To lower its efficiency ratio and become more efficient, a bank must change the two components of the equation:
- Decrease Expenses: Lower overhead costs through automation, digital banking migration or closing redundant branches.
- Increase Revenues: Boost net interest margins or grow fee-based, non-interest income without a proportional increase in operating costs.
- Short Term: Heavy IT infrastructure and software investments increase non-interest expenses (e.g., software licensing, cloud migration, digital talent).
- Long Term: Successful tech “enablement” lowers overhead by automating back-office processes, enhancing digital banking and reducing reliance on physical branch networks. Over time, a declining Efficiency Ratio is evidence that tech capex is driving superior operating leverage.
Use with Caution
While a higher Asset-to-Employee Ratio and a lower Efficiency Ratio generally indicate superior productivity, industry regulators and executives handle strategic trade-offs with care:
- Credit Risk: If bank employees are stretched too thin while managing massive volumes of assets, underwriting standards can slip, thereby resulting in bad loans.
Fortunately, Loan Quality and Performance Also Seem to be Improving
Sources: FDIC, WCG, 10/20/26.
Despite a relatively relaxed financial system, the good news is that loan quality and performance also seem to be improving, underscoring underwriting discipline across the banking system. Insured institutions carry high credit quality accompanied by falling net charge-off rates and better returns on assets (ROA, see the chart above).
Bottom Line
Like the Léger Productivity Index (LPI), which compares publicly-traded US multi-national corporate revenues to private payrolls, increasing efficiency in the banking sector isn’t just a forecast, it’s an empirical observation. Recent data show bank productivity growth of 7.3% year over year, which is strong in the absence of an economic recession / recovery. As institutions extract greater asset yields per employee without corresponding cost spikes, bank operating margins should enjoy ongoing structural expansion. The upshot is that productivity gains in financial services confirm my positive LPI signal for broader corporate profitability in a largely finance-based economy.*
*Market Strategy Flash, Doing More With Less: Why S&P 500 Employees Are 3x More Productive Than the Average US Worker, February 6, 2026.
*Market Strategy Flash, Profit Paradox: Why Slow Hiring Boosts the S&P 500, January 16, 2026.
*Market Strategy Flash, Productivity: The silver lining of meagre job growth, October 3, 2026.
Portfolio Strategy
by Jim Worden, CFA®, CMT®, CAIA®, Chief Investment Officer
October 23, 2026
Why Top-Down Can Work with Bottom-Up
Throughout my career, I’ve come across great managers that deploy either a bottom-up approach to investing – looking at individual companies, balance sheets, income statements, valuation models, or even technicals – or a top-down approach – looking only at sectors, styles, factors, or regions, regardless of what the basket owns. Both can work great for investors, but why not combine them? Just like my approach to incorporating fundamentals with technicals and macro analysis, more is better than less, in my opinion.
Why? Because while bottom-up allows us to deviate from benchmarks and to some extent reach for alpha or excess returns, it also opens us up to tracking error or missing what the top-down benchmarks are already giving us. This would be like accepting some of the trend signals and ignoring others. If the market is telling us a basket of biotech companies or a basket of large growth companies is breaking out on the news of record profit margins and revenue growth, we should pay attention.
Conversely, bottom-up work allows us to fine-tune our risk management and reduce concentration risk, which can often be prevalent with top-down investing in sectors, styles, regions, or factors. Emerging Markets is a good example. Three companies – Taiwan Semiconductor, Samsung, and SK Hynix – represent just under one quarter of the whole MSCI Emerging Markets index and ETF (IEMG) per Bloomberg as of 10/21/26. Micron (MU) represents just under 21% of the MSCI USA Value Factor Index and ETF (VLUE). Amazon.com (AMZN) and Tesla (TSLA) represent more than 41% of the S&P 500 Consumer Discretionary Sector and ETF (XLY). All data is from Bloomberg as of yesterday.
So, while investing only with a Top-Down style can keep tracking error low and allow us to be intentional about certain tilts we want exposure to, it can leave us vulnerable to owning perhaps too much of certain companies that maybe we didn’t intend to own. And Bottom-Up investing sometimes can veer too far away from an index or a style, but it can also allow us to be very precise about what we own and how much we own from a risk management and diversification standpoint.
Combining elements or pieces of both allows an investor or a portfolio manager to have more freedom to express views about larger aggregated trends while simultaneously getting exposure to names that may have little or no exposure in an index, sector, or regional fund. Tracking error doesn’t become a problem, because we will still own some of the companies that are driving the larger trends higher, whether due to fundamentals, the macro environment, or technicals.
Definitions
NBER Recession: A significant decline in economic activity spread across the economy, lasting more than a few months, as officially designated by the National Bureau of Economic Research. It is determined by analyzing factors like gross domestic product, income and employment.
Efficiency Ratio: A key banking metric measuring how much a financial institution spends to generate a dollar of revenue (calculated as noninterest expenses divided by net interest income plus noninterest income). A lower ratio indicates greater cost efficiency and stronger operating leverage.
Average Assets per Employee: A productivity measure calculated by dividing total bank assets (such as loans, securities, and cash) by the number of full-time equivalent employees, illustrating how effectively an institution scales its balance sheet relative to its workforce.
Net Charge-Off Rate: The value of loans that a bank has written off as uncollectible (minus loan recoveries) expressed as a percentage of total loans, serving as a primary indicator of credit quality and loan loss trends.
Return on Assets (ROA): A financial profitability ratio that measures a bank's net income relative to its total assets, indicating how efficiently management converts assets into net earnings.
Operating Leverage: A measure of how revenue growth outpaces expense growth, allowing a business to expand its profit margins as volume scales.
Full-Time Equivalent (FTE) Employees: A standardized metric used to measure an organization's total workforce by combining full-time and part-time staff hours into equivalent full-time worker units.
Net Interest Income: The difference between the interest revenue a bank earns on loans and investments and the interest expense it pays out to depositors.
Bottom-up investing: An approach that evaluates individual securities using company-specific information, such as financial statements, valuations, or price trends, to inform portfolio decisions.
Top-down investing: An approach that begins with broader economic or market conditions and uses exposures such as regions, sectors, investment styles, or factors to inform portfolio decisions.
Fundamental analysis: The evaluation of financial and economic information to assess a company’s financial condition, business prospects, and valuation.
Technical analysis: The analysis of historical market data, including prices and trading volume, to identify trends and inform investment decisions. Technical signals are not reliable predictors of future results.
Macroeconomic analysis: The study of broad economic conditions, such as growth, inflation, interest rates, and employment, and their potential investment implications.
Benchmark and index: A benchmark is a reference used to evaluate an investment or portfolio. An index measures a defined group of securities under specified rules. Indexes are unmanaged, and investors cannot invest directly in an index.
Alpha and excess return: Excess return is the difference between an investment’s return and a benchmark return over a specified period. Alpha generally refers to return above or below that explained by a specified risk model; it is not necessarily the same as simple excess return.
Tracking error: A measure of the variability of a portfolio’s returns relative to its benchmark, commonly calculated as the standard deviation of periodic return differences. It can reflect both outperformance and underperformance.
Concentration risk and diversification: Concentration risk arises when a substantial portion of a portfolio is exposed to a security, industry, region, or shared risk. Diversification spreads investments across exposures to help manage risk; it does not assure a profit or prevent loss.
Sectors styles factors and tilts: Sectors group companies by business activity. Styles include growth and value. Factors are investment characteristics, such as value, momentum, quality, or size. A tilt increases or decreases exposure relative to a benchmark or other reference.
Exchange-traded fund or ETF: A pooled investment vehicle whose shares trade on an exchange. ETFs have expenses and market risks; an ETF’s holdings, weights, and returns can differ from those of its benchmark.
Emerging markets: Markets in economies generally considered to be developing, which may involve greater political, currency, liquidity, and market risks than developed markets.
Moving average and breakout: A moving average smooths a series of prices over a specified number of periods. The chart’s 50-, 100-, and 200-day simple moving averages average prices over those respective trading-day windows. A breakout is a price move beyond an identified trading range or technical level; it can reverse.
Profit margin and revenue growth: Profit margin expresses a specified measure of profit as a percentage of revenue. Revenue growth is the change in sales over a specified period.
Disclosures
This commentary expresses the author’s opinions as of October 22, 2026, is provided for informational and educational purposes, and is subject to change without notice. It is not individualized investment advice or a recommendation to buy or sell any security, fund, or strategy. Investment decisions should consider an investor’s objectives, financial circumstances, time horizon, and risk tolerance.
All investing involves risk, including the possible loss of principal. Past performance and historical price trends do not guarantee future results. No investment approach, combination of approaches, analytical method, or risk-management technique can guarantee outperformance, reduced tracking error, or protection against losses. Bottom-up and top-down approaches can each create concentrated exposures, deviate from a benchmark, and underperform. Diversification does not assure a profit or protect against loss in a declining market.
The securities and ETFs discussed are examples used to illustrate investment concepts and concentration risk, not an exhaustive review or an endorsement. Holdings and weights change over time. ETF holdings and weights may differ from the constituents and weights of a similarly named index. Indexes do not reflect the fees, expenses, or trading costs incurred by an investor. ETF shares are subject to market-price fluctuations, expenses, liquidity risk, and possible premiums or discounts to net asset value. Sector and factor strategies can involve additional concentration risk. International and emerging-market investments involve additional risks, including currency movements and political and economic instability.
Holdings figures in the article are attributed by the author to Bloomberg as of October 21, 2026. The accompanying Bloomberg chart displays historical IEMG prices and moving averages through October 22, 2026. Historical prices and technical indicators are not forecasts, and price changes alone may not represent total returns. Third-party information is believed to be reliable, but its accuracy and completeness are not guaranteed.
Before investing in an ETF, carefully consider its investment objectives, risks, charges, and expenses. This and other information appears in the fund’s prospectus or summary prospectus, which is available from the fund sponsor. Read the prospectus carefully before investing.
The views expressed are for informational and educational purposes only and are subject to change without notice.
This material is not intended as, and should not be interpreted as, individualized investment advice or a recommendation to buy, sell, or hold any security, sector, industry, or investment strategy.
References to specific companies, securities, sectors, or industries are for illustrative purposes only and should not be construed as investment recommendations.
Investing involves risk, including the possible loss of principal. Investments in a specific industry or sector may involve greater risk and volatility than more diversified investments.
Past performance is not indicative of future results. No investment strategy can guarantee a profit or protect against loss.
Forward-looking statements, including views about future demand, pricing, supply, or industry cycles, are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results may differ materially.
Data and information are believed to be reliable, but accuracy, completeness, and timeliness are not guaranteed. Source documents should be retained for factual claims, third-party research references, and company-specific data.
Portfolio holdings, allocations, and risk budgets are subject to change based on market conditions, client objectives, and investment guidelines.
The author, firm, clients, or related persons may hold positions in securities mentioned and may buy or sell those securities without notice, subject to applicable policies and regulations.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through WCG Wealth Advisors, LLC, an SEC Registered Investment Advisor. WCG Wealth Advisors, LLC and The Wealth Consulting Group are separate entities from LPL Financial. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.
All information in this report is believed to be from reliable sources; however, WCG Wealth Advisors, LLC, makes no representation as to its completeness or accuracy.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the companies as well as broad market, economic and political conditions. Stock investing involves risks, including fluctuating prices and loss of principal. Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time. (135-LPL) International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. (93-LPL)
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors. (122-LPL)
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. (28-LPL)
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. (26-LPL)
Standard deviation is a historical measure of the variability of returns relative to the average annual return. If a portfolio has a high standard deviation, its returns have been volatile. A low standard deviation indicates returns have been less volatile. (131-LPL)
This is for educational / general purposes only, does not constitute investment, tax or legal advice and should not be relied on as such. This is not to be construed as an offer to buy or sell any financial instruments. Any strategies discussed are not intended to be relied upon as the sole factor in making an investment decision for any individual. As with all investments there are associated inherent risks. Please obtain and review all financial material carefully before investing. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. These comments should not be construed as recommendations but as an illustration of broader themes.
Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations. In addition, forward-looking statements, including index targets or market scenarios, are hypothetical in nature, reflect current views and assumptions and are subject to change based on market and economic conditions and are not guarantees of future performance. This is a hypothetical example and is not representative of any specific investment. Your results may vary. (88-LPL) Scenario outcomes are illustrative and not predictive. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly. (102-LPL)
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Publication Date: October 23, 2026
For Public Use in the US
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