www.hamiltonplacestrategies.com
202-822-1205
Findings:
Despite critics claims,
the largest banks have
profoundly changed their
structure and activities
Changes include
More than doubling
loss absorbing capacity and tripling of
liquidity
Reduced trading activity and safer lending
Less market share
since the crisis due
to stagnant asset
growth
However, boring banks
have their costs - less
lending, reduced liquidity, and risk migration
HPS counts large banks among
its clients; however, this paper
reflects the views of the authors alone.
Russ Grote
Marshall Schraibman
Taylor Thomas
David Wylie
Justin Levine
900
800
Billions of Dollars ($)
Funding Analysis
700
$422B
600
500
400
300
200
$430B
$430B
Q208
Q215
100
0
Source: Bloomberg, HPS Calculations
+43%
Percent (%)
40
35
30
25
Source: Bloomberg
Q2 2015
Q2 2014
Q2 2013
Q2 2012
Q2 2011
Q2 2010
20
12.9
12.5
13.1
11.7
<$10B
$10B-$50B
$50B-$100B $100B-$500B
>$500B
Asset Class
Source: Due to limitations in data availability, based on Q414 reporting
via Bloomberg
Trading Down
-11%
16
-12%
14
12
Percent
10
8
6
4
2
0
Q2 2010
Q2 2013
Q2 2015
Trillions of Dollars
have decreased by 12 percent while moving to simpler, more stable assets, such
as Treasuries.
44
40
40
35
30
25
20
2010 Average
2015 Average
$340B
100
50
$103B
Loan Losses
Trading Losses
Q4 2016 in a hypothetical
severely adverse scenario.
Thats to say, banks loan
portfolios pose significantly
more risk to financial stability than any trading activities.
8
6
4
+190%
Liquid Assets
0
Q208
Q215
Percent (%)
-39%
3
2
1
Q2 2015
Q2 2014
Q2 2013
Q2 2012
Q2 2011
Q2 2010
Asset Class
<$10B
13.6%
$10B-$50B
29.5%
25.1%
$50B-$100B
$100B-$500B
>$500B
10.8%
Asset-Side Conclusion
Critics of large banks are
not just concerned with the
quality of assets on banks
balance sheets, but also
the quantity. Sen. Elizabeth
Warren told Treasury Secretary Jack Lew that the largest
banks are getting bigger by
the day, and that they have
-2.7%
not
impossible
has topped 20 percent. So
while our economy, the S&P given the thousands of pages of rules that came with
500, the banking sector,
Dodd-Frank. And the fact
and other competitors have
grown, large banks are trend- is we are seeing new risks
emerge.
ing the opposite direction.
Hamilton Place Strategies 8
Deposit Insurance
Official: Biggest
Banks Are Worst
Positioned For Crises. Washington Examiner. 3/15
4
Many of
these reMark Carney warned in a
forms have
June
speech,
the
possibilOFRs 2014
been overity of sharp, unpredictable whelmingly
annual report caubeneficial
changes in market liquidtioned, If
to the
ity poses a clear risk to
the regulafinancial
financial stability.
tory playing
system.
field is not
Undue risks
level across the financial
are a problem, but so is no
system, the shift of certain
risk, which would lead to
activities to more lightly reg- lower economic growth. In
ulated sectors could increase the end, it always important
risk-taking and reduce trans- to remain cognizant of the
parency in market practicultimate goal: a safer finanes.15
cial system that support
sustainable growth, and in
This is already playing out in pursuing this goal, boring is
the financial system. In adnot always better. []
dition to the leveraged loan,
auto, and GSE-backed mort-
What Hath All The Rules Wrought? Federal Financial Analytics. 4/29
13
Hank Paulson, Hank Paulson: Other Economies Have Bigger Problems, Fox Business
Opening Bell, 4/15
14
16
What Hath All The Rules Wrought? Federal Financial Analytics. 4/29