The Value and Strength of America’s Largest Financial Institutions

29 Mar 2019

Updated June 2019 (Download as a PDF)

Our value to the economy

Forum member institutions support economic growth by lending to consumers, businesses, and other financial institutions, and foster deep and liquid capital markets that allow the U.S. government and private institutions to finance public spending and investment.

 

Supporting Savings and Investment Through Lending

 

Total Lending

Forum members hold more than $4 trillion in loans, accounting for 41.8 percent of total lending by banks to businesses and households.

Note: Chart represents a rolling, previous four quarter average of data.

 

Lending to Consumers

Forum members provide $685 billion in consumer loans, accounting nearly half of all consumer loans by banks in the United States. Consumer lending supports loans for a variety of household needs, such as the purchase of a new car or furnishing a new home.

 

Commercial and Industrial (C&I) Lending

We have increased C&I lending in each of the past eight years, accounting for 39 percent of total C&I lending by banks in the market, helping businesses grow and contribute to the economy.

 

 Note: Chart represents a rolling, previous four quarter average of data.

 

Small Business Lending

We are a major source of lending to small businesses, helping the economy grow at both a community and national level.

 

Forum members hold $86 billion in business loans less than $1 million, representing one-quarter of all such loans by banks to small businesses.

Sources: Federal Reserve data, Assets and Liabilities of Commercial Banks in the United States – H.8, available at https://www.federalreserve.gov/releases/h8/default.htm; FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx

 

We also provide $54 billion in business loans less than $100,000, representing a third of all such loans by banks to small businesses.

 

 

Sources: Federal Reserve data, Assets and Liabilities of Commercial Banks in the United States – H.8, available at https://www.federalreserve.gov/releases/h8/default.htm; FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx

 

Forum members lend to small businesses across the United States

Forum member small business lending supports entrepreneurship across the nation and in a wide array of communities.

Sources: FFIEC Community Reinvestment Act, available at https://www.ffiec.gov/cra/default.htm, U.S. Census Bureau County Population Totals, available at https://www.census.gov/data/datasets/2017/demo/popest/counties-total.html
  • These data reflect originations of small business loans from 2010-2017 by Forum members.
  • Small business lending is spread throughout the United States and areas with the highest percentage of small business lending per capita represent a diversity of geographic regions.
Lending to Other Financial Institutions

We meet three-quarters of the bank funding needs of other financial institutions. Lending to financial institutions supports the needs of community banks, insurance companies, and mortgage finance companies, which provide important services to businesses and households.

Sources: Federal Reserve data, Assets and Liabilities of Commercial Banks in the United States – H.8, available at https://www.federalreserve.gov/releases/h8/default.htm; FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx

Note: Chart represents a rolling, previous four quarter average of data

 

Supporting Deep and Liquid Capital Markets

Total Debt and Equity Underwriting Activity

Our members underwrite nearly three-quarters of debt and equity transactions—such as initial public offerings—among large institutions in the U.S., providing a critical service that other U.S. institutions cannot offer on a similar scale.

Our underwriting activities:

  • foster deep and liquid capital markets
  • support corporate investment in the real economy
Source: FR Y-15 data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx
Note: The data cover debt and equity underwriting for all holding companies with total consolidated assets in excess of $50 billion
Mutual Funds and Annuities

With over $3 trillion of mutual funds and annuities under management, we support retirement and other saving needs.

 

 Sources: Federal Reserve data, Assets and Liabilities of Commercial Banks in the United States – H.8, available at https://www.federalreserve.gov/releases/h8/default.htm; FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx

 

Municipal Securities Holdings

A construction site.

 

With nearly $150 billion in municipal securities holdings, we finance a significant portion of state and local government expenditures, such as hospitals, roads, bridges, and schools.

  • Our holdings of municipal securities also foster liquid secondary markets, thus improving the ease and cost with which state and local governments can access capital markets and finance public spending and investment


Sources: Federal Reserve data, Assets and Liabilities of Commercial Banks in the United States – H.8, available at https://www.federalreserve.gov/releases/h8/default.htm; FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx Note: Chart represents a rolling, previous four quarter average of data.

 

U.S. Treasury Securities

With nearly $720 billion in U.S. Treasury securities holdings, we also finance a significant portion of federal government expenditures. 

  • Our holdings of U.S. Treasury securities also foster liquid secondary markets, thus improving the ease and cost with which the U.S. government can access capital markets and finance public spending and investment.

Sources: Federal Reserve data, Financial Accounts of the United States – Z.1, available at https://www.federalreserve.gov/releases/Z1/current/default.htm; FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx
Note: Chart represents a rolling, previous four quarter average of data.

 

 

Improvements in resiliency, resolvability, and supervision

We have substantially improved our capital and liquidity positions in the past several years.  In addition, a number of regulatory and supervisory changes have led to further improvements in our resiliency and resolvability.  These changes have resulted in a stronger banking system that supports a strong economy.  Prudential regulation should promote safe and sound institutions that can lend in both good and bad times.

Improvements in Capital and Liquidity

Improvements in Tier 1 Capital and Resiliency

We have significantly enhanced the quality and quantity of our capital over the past nine years.  Since 2010, Tier 1 capital has increased by nearly 40 percent and has grown as a share of risk-weighted assets and total capital. Our members currently maintain $926 billion of Tier 1 capital.

Both dollar amounts of capital and capital ratios have improved markedly since 2010.

Source: FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx

 

The share of capital accounted for by high-quality and loss-absorbing Tier 1 capital has improved markedly.

Note: Capital amounts are reflective of the regulatory definition of capital at each point in time.  Chart represents a rolling, previous four quarter average of data. 

 

Improvements to Total Loss Absorbency

Since 2008, Forum member’s total loss absorbency – measured by convertible long-term debt, Tier 2 capital, common equity Tier 1 and additional Tier 1 capital – has grown by over $850 billion, a 100 percent increase that substantially improves Forum members’ ability to withstand losses.

  • Common equity Tier 1, the most loss absorbing form of capital, has grown more than $515 billion since 2008, and has increased as a percent of total Tier 1 capital, from 45% to 87%.

Sources: FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx; Federal Reserve Board “The Supervisory Capital Assessment Program: Overview of Results, available at https://www.federalreserve.gov/newsevents/files/bcreg20090507a1.pdf

  • Estimated convertible long-term debt, debt that may be converted into equity to absorb losses, will be required and in place by January 1, 2019.

 

 

Sources: FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx; Federal Reserve Board “The Supervisory Capital Assessment Program: Overview of Results, available at https://www.federalreserve.gov/newsevents/files/bcreg20090507a1.pdf

 

Forum Capital Resiliency and Stress Tests

Stress tests have become an important part of the capital regime for Forum members. While losses sustained from stress tests are significant, they pale in comparison to the amount of Forum member Tier 1 capital.

  • Forum aggregate stress test losses range from 13.7 percent to 26.5 percent of Forum aggregate Tier 1 capital, demonstrating that Forum members maintain substantial capital to sustain losses as severe as those contemplated in the stress tests.
  • In addition, stress test losses are significantly more severe than the experience of the financial crisis.

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Forum Resiliency vs. International Peers

Forum members maintain significantly more capital than their foreign counterparts.  This enhanced resiliency leads to a strong banking system that supports economic growth.

  • Forum members have a higher capital-to-asset-ratio when compared to their EU/Canadian and Asian counterparts
  • This difference is especially large compared to EU and Canadian GSIBs, with Forum members’ maintaining 37% more capital relative to assets
Improvements to Liquidity Profile

We have also greatly increased our liquidity profiles and now hold nearly $2.5 trillion in high-quality liquid assets (HQLA).  Since 2010, HQLA has doubled.

  • Increased liquidity complements increased capital and improves resiliency to adverse shocks.
  • We have substantially increased HQLA, both in dollar amount and relative to total assets.

 Note:  HQLA is reported according to Basel III at the Bank Holding Company level.  Chart represents a rolling, previous four quarter average of data. 

 

Post-Crisis Reforms and Resiliency

The collapse of Lehman Brothers is often regarded as the turning point of the 2007-2009 recession. A similarly sized financial entity subject to today’s regulatory standards would be significantly more resilient to large shocks like those experienced during the financial crisis.

  • In 2008, Lehman held low levels of cash and liquid resources making it susceptible to adverse shocks. Post-crisis liquidity regulations require much higher levels of liquidity.
  • Post-crisis capital requirements would result in a near doubling of capital levels relative to 2008.
  • Large banks now issue significant amounts of debt that can be “bailed-in” to support a resolution event. Such debt was not available in 2008.
  • A number of additional regulatory and supervisory enhancements have strengthened the resiliency of the financial system.

Sources: Federal Reserve FR Y-9C data, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx, Lehman Brothers 2008 Q2 10-q, available at https://www.sec.gov/Archives/edgar/data/806085/000110465908045115/a08-18147_110q.htm

Improvements in Regulation and Supervision

 

Additional Regulatory and Supervisory Developments

In conjunction with significantly higher levels of capital and liquidity, several post-crisis regulatory and supervisory reforms have greatly increased the resiliency of the U.S. financial system.

  1. Enhanced Supervision: Increased supervision at member institutions further promotes safety and soundness.

  2. Title II – Orderly Liquidation Authority (OLA): A new legal and structural framework for resolving large banks lowers the cost of resolving a member institution.

  3. Living Wills: Forum members have undertaken an extensive review and planning process designed to improve their resolvability under bankruptcy

  4. Total Loss-Absorbing Capacity and Long-Term Debt Requirements: New requirements to issue long-term debt and equity support the Title II resolution process.

  5. Derivative Reforms: Mandates for central clearing, margin, and recognition of stays reduce systemic risks from derivatives

 

Resolution: Overview and Improvements

Under a new regulatory requirement to submit annual resolution plans (often referred to as “living wills”), U.S. GSIBs have made significant progress to reduce their organizational complexity and increase their resolvability.

Total subsidiaries at U.S. GSIBs have declined by roughly 50% since 2009, which suggests a significant decrease in organizational complexity.

 

Source: FFIEC National Information Center, HC > $10B Organizational Hierarchy, available at https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx

 

Through the annual submission of resolution plans to the FRB and FDIC, large banks explain how they would undergo a rapid and orderly resolution in the event of material financial distress or failure – decreased organizational complexity would facilitate such a resolution proceeding.

 

 

Learn More:

When Bigger is Beneficial: Scale Economies in the Banking Industry

In a blog post, Forum’s Director of Policy Research explains how large banking organizations provide unique benefits to businesses and consumers. Read more.