Chastening the Giant Banks

From the Gordon Gekko 1980s until the mortgage meltdown in 2007-8, the financial industry came to dominate the world economy. On this extraordinary and sometimes terrifying ride, banks reaped incredible profits while management and staff received generous salaries and lush bonuses.

And then everything fell apart. Eventually governments had to step in to bail out or shut many financial institutions.

Five years after the crisis, some participants and close observers of the world of finance see a generational humbling of the big banks under way. For the first time in nearly 30 years, they say, finance is starting to look a bit more like a normal industry.

“The future’s going to be different,” said Richard W. Fisher, president of the Federal Reserve Bank of Dallas and a former Wall Street banker and hedge fund manager. Though he thinks some financial institutions are still too large, he believes important progress has been made since the crisis. “The big, complex banks have been chastened,” he said. “There will be more hitting of singles and less swinging for the fences.”

The extent to which banks have been constrained is open to debate, especially in the view of regulators and of critics who continue to see the industry as creating risks to the economy even as it reaps the benefits of a recovery that has done little for most working people.

Most banks are profitable, and profits have been rising steadily since the crisis. In fact, for the second quarter of this year, banks in the United States reported total earnings of more than $42 billion, a record. Few criminal charges have been brought against the architects of the 2008 disasters. And governments have left the largest financial institutions intact, leaving the controversial notion of “too big to fail,” and the systemic risk that it brings, alive and well.

A wave of consolidation in the United States has concentrated financial assets in the hands of a small number of big institutions, critics say, and in Europe, little has been done to meaningfully shrink the region’s largest banks.

“It’s too early to say how one judges the last five years of reform,” said John Vickers, an Oxford professor of economics who headed Britain’s commission on overhauling banks. “Much depends on the next five.”

The shift can be hard to track because it involves the intricate ways in which banks make money. But the numbers show that measures introduced since the crisis are steadily depriving banks of some financial and political advantages that fueled their growth for years.

The importance of the political dimension is hard to overstate. During finance’s most powerful period, the industry exercised far-reaching influence on governments and regulators.

These days, however, the politics appear to be shifting, with more elected officials backing measures that restrain the financial industry. In the United States, for instance, Republicans and Democrats have in recent months jointly sponsored bills in Congress that would make the banking overhaul stricter. How they will fare in the face of intense lobbying remains to be seen.

In this debate, in the United States and Europe, banks are no longer seen as companies whose demands must be met to generate prosperity. Instead, they are increasingly viewed as entities that benefit from a range of subsidies and often engage in activities that can harm economic growth.

Philippe Lamberts, a member of the European Parliament, led efforts to pass a law this year to cap bankers’ bonuses. He was elected in 2009, representing Ecolo, a Belgian green party, after a 22-year career at I.B.M. He said he had changed his views on finance in the past decade after deciding that it was having a negative influence on the wider economy.

“Everything that can be done to bring the financial industry back to what it’s supposed to do, should be done,” Mr. Lamberts said.

A version of this special report appears in print on October 15, 2013, in The International New York Times.