Considerable debate persists surrounding the extent to which banks have actually increased their capital since the financial crisis.
Diane Glossman, Robin Lumsdaine, and I seek to help by establishing measurable parameters and facts. We consider the six largest bank holding companies (BHCs) – JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley – and find that:
– Since December 31, 2007, the big four traditional BHCs (JPM, BAC, C, WFC) have increased Tier 1 capital by $306 billion or 103%. Much of this improvement is a result of the acquisitions that were made during the crisis.
– Gains in total risk based capital have been modestly less impressive as Tier 2 capital has slid by $13 billion or 9%.
– Risk-weighted assets among the four largest BHCs have declined from 66% to 61% of total assets, as institutions have reduced risk and / or adjusted their business mix to reflect changes in regulatory risk weights.
– The ratio of BHC capital to total assets has improved.
– There is substantial variation in the improvement, even across this small subset of banks.
For “Bank Capital Observations”:
http://www.centerforfinancialstability.org/research/CFS_Bank_Capital_011314.pdf