Market Overview

The Balancing Acts By Brokers And Banks On Regulatory Requirements

The Balancing Acts By Brokers And Banks On Regulatory Requirements

In a new report, Bank of America analyst Erika Najarian discussed the continuing improvement big banks are making to their balance sheets in the aftermath of the Financial Crisis. In an effort to make sure that banks are never again caught with their pants down from a capital standpoint, regulators have imposed a number of new post-crisis balance sheet requirements.

5 Ratios

Overall in Q2, Najarian sees continuing improvement for most big banks when it comes to the five key regulatory ratios that they are all balancing:

  • 1. CET1- Common Equity Tier 1 ratio of a bank’s core capital to its risk-weighted assets (RWAs)
  • 2. TLAC- minimum Total loss-absorbing capacity requirement
  • 3. SLR- Supplementary Leverage Ratio
  • 4. NSFR- Net Stable Funding Ratio
  • 5. LCR- Liquidity Coverage Ratio

Across the board, global banks and brokers reduced total RWAs by 3.0 percent in Q2, including major improvements by some big-name stocks.

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U.S. Banks & Brokers

The report included spider-web charts that show the quarter-over-quarter (Q/Q) changes in the regulatory positions of U.S. banks JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc (NYSE: C) and Wells Fargo & Co (NYSE: WFC).

JPMorgan’s biggest Q/Q improvement was to its TLAC, while Citigroup’s biggest change came to SLR. “Only WFC’s SLR declined modestly as the bank continues to grow its balance sheet and risk tolerance,” Najarian noted.

Broker giant Goldman Sachs Group Inc (NYSE: GS) solidified its SLR as well in Q2, while Morgan Stanley (NYSE: MS) improved its CET1.

European Investment Banks

One of the most drastic Q/Q improvements came from Credit Suisse Group AG (ADR) (NYSE: CS), which made major improvements to its LCR. Barclays PLC (ADR) (NYSE: BCS), Deutsche Bank AG (USA) (NYSE: DB) and UBS Group AG (USA) (NYSE: UBS) all made modest improvements to SLR as well.

Image Credit: Public Domain

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