With two Presidential debates this week, Hamilton Place Strategies released a new report detailing changes to the largest banks’ balance sheets since the crisis and the enactment of Dodd-Frank. With apologies to Upton Sinclair, we note that it’s difficult to get a politician to acknowledge a fact when their political success depends upon that fact not being true.

This report seeks to provide a common fact-base from which to debate the future of financial regulation by examining changes to both bank’s funding and assets.

We find:

Funding Analysis

  • Tier 1 capital, considered by most to be the gold standard for loss-absorbing capacity, has increased by 98 percent at the six largest banks since the crisis.
  • With a regulatory focus on reducing nondeposit liabilities, the six largest banks have increased their retail deposit ratio, the ratio of retail deposits to total liabilities, by 43 percent.
  • Overall, the largest banks’ median Tier 1 Common ratio is 12.3 percent, ahead of every other asset class.

Asset Analysis

  • The six largest banks have reduced their trading assets as a share of total assets by 12 percent since 2010.
  • The amount of liquid assets — cash plus marketable securities — held by banks grew from $480 billion in Q2 2008 to $1.38 trillion in Q2 2015, a threefold increase.
  • The largest banks have lost market share as smaller banks have grown significantly faster than larger ones since Dodd-Frank.
  • The report concludes that the core of Dodd-Frank – higher and better quality capital, improved liquidity, resolution, stress tests, and living wills is here to stay, but “it’s always important to remain cognizant of the ultimate goal: a safer financial system that supports sustainable growth, and in pursuing this goal, boring is not always better.

Disclosure: HPS counts large banks among its client; however, this paper reflects the views of the authors alone.

The Boring Balance Sheet: Large Banks Today by Hamilton Place Strategies on Scribd