2015-03-25-奥纬咨询-Post-Crisis_Changes_in_the_Stability_of_the_US_Banking_System_33页_650kb

Summary of Post-Crisis Changes in the Stability of the US Banking System

Core Content

This study examines the evolution of financial stability in the US banking system from 2004 to 2014, focusing on the impact of post-crisis regulatory reforms. It evaluates four key dimensions of financial stability: the reach of effective banking regulation, the risk of insolvency, the risk of runs, and the risk of contagion. The findings are aligned with the objectives of policymakers to enhance the resilience of the financial system.

Main Points

• Post-crisis Regulatory Reforms: Following the 2008 financial crisis, a series of regulatory initiatives were introduced to enhance financial stability. These include the extension of supervisory coverage and the implementation of stricter regulations such as the Dodd-Frank Act and Basel III.

• Financial Stability as a Holistic Goal: Policymakers have emphasized the need for a systemic view of financial stability, rather than focusing solely on individual institutions. The goal is to ensure that the financial system can withstand shocks without significant disruption to the broader economy.

• Policy Levers for Stability:

  • Extending Regulatory Coverage: Expanding the scope of prudential regulation to include previously unregulated financial activities and institutions.
  • Reducing Solvency Risk: Increasing capital buffers and the quality of capital, especially for larger banks, to ensure they can absorb losses without failing.
  • Reducing Risk of Runs: Enhancing liquidity requirements through measures like the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).
  • Reducing Contagion Risk: Implementing transparency measures and reducing direct interconnections among financial firms, such as through central clearing and margin requirements.

Key Findings

• Expanded Regulatory Reach:

  • The Federal Reserve extended its supervision to include major investment banks and consumer/commercial lenders, such as Goldman Sachs, Morgan Stanley, Bear Stearns, and Washington Mutual.
  • This expansion has brought more financial activities under the purview of prudential regulation, reducing the likelihood of unregulated systemic risk.

• Improved Solvency:

  • Capital levels, particularly high-quality common equity tier 1 (CET1) capital, have increased significantly.
  • The median Tier 1 risk-based capital ratios for US Global Systemically Important Banks (GSIBs) increased from 7% in 2004 to 12% in 2014.
  • GSIBs have increased their holdings of low-risk assets (e.g., cash and US Treasuries) to nearly 30% of their balance sheets, up from 12% in 2004.

• Reduced Risk of Runs:

  • The use of longer-duration funding and higher liquidity holdings has decreased the likelihood of destabilizing runs.
  • The adoption of LCR and NSFR standards has played a key role in this improvement.

• Contagion Risk Mitigation:

  • The shift from bilateral clearing to central counterparties (CCPs) has reduced the opaque interconnections among banks.
  • Regulatory measures have aimed to limit the spread of distress across financial institutions.

Methodology

• The study defines the US banking system as the set of bank holding companies (BHCs) under Federal Reserve supervision with at least $500 MM in assets as of 2014 Q2, including their predecessor institutions.
• The analysis is divided into three groups:
  • GSIBs: 8 US-based banks identified as globally systemically important.
  • Non-GSIB CCAR: 20 domestic non-GSIBs that participated in the CCAR stress testing.
  • Other BHCs: Approximately 900 remaining BHCs with over $500 MM in assets.
• The 10-year time frame (2004–2014) was chosen to balance data consistency and the ability to observe clear trends in financial stability indicators.

Conclusion

• The post-crisis regulatory reforms have significantly enhanced the stability of the US banking system.
• The expansion of regulatory coverage, along with increased capital and liquidity requirements, has improved the system's ability to absorb shocks.
• However, the study notes that financial stability is not guaranteed and requires ongoing vigilance, as some financial activities may still evolve outside the scope of regulation.

Key Metrics

Notes

• The study excludes non-bank SIFIs and foreign banking organizations (FBOs) except for a few with significant US presence.
• The analysis is based on data from SNL Financial and Oliver Wyman, focusing on the US banking system rather than the entire financial system for consistency and practicality.

References

• Crossen, Liang, Protsyk, and Zhang (2014)
• Financial Stability Board (FSB)
• SNL Financial
• Oliver Wyman analysis

Figures

• Figure 1: Overview of major post-crisis regulatory changes in US banking.
• Figure 2: Scope of the banking system used in the analysis.
• Figure 3: Growth of the banking system from 2004 to 2014.
• Figure 4: Size of bank balance sheets as a proportion of GDP.
• Figure 5: Proportion of zero-risk assets on bank balance sheets.
• Figure 6: Freddie Mac mortgage lending by FICO score.
• Figure 7: Common Equity Tier 1 (CET1) capital in billions of dollars.
• Figure 8: Change in total equity of the banking system from 2010 to 2013.
• Figure 9: Tier 1 Capital Ratio (Tier 1 Capital/RWA) as a percentage.