Reductions in workforce numbers have been Wall Street’s inevitable, and understandable, response to the global credit crunch. But new McKinsey research shows that the untapped opportunity to cut noncompensation costs is also considerable—possibly amounting to more than $2 billion in recurring savings for some investment banks. What’s more, our analysis suggests that executives can embark on this additional belt tightening without harming a bank’s culture and morale.

Banks routinely use a variety of metrics to monitor their expenses. Operating costs as a percentage of revenues is a helpful measure in more stable times. The absolute value of costs and their growth rate are also widely watched. However, there is a strong correlation between compensation costs and revenues: when the market is up, compensation swells; when the market is down, it dwindles. That often masks underlying trends in noncompensation expenses—trends that get lost in the totals. As a result, when banks compare themselves with their peers, they may miss important differences.

We believe that the best indicator, though one used less widely than the others, is noncompensation costs per head count. This measure largely eliminates distortions created by revenue volatility and growth, and it facilitates peer-to-peer comparisons. Applying the per-head-count ratio...