The experience of the global financial crisis, the post-crisis market environment and changes to regulatory frameworks have had a marked impact on the banking sector globally. The Committee on the Global Financial System (CGFS) Working Group examined trends in bank business models, performance and market structure over the past decade, and assessed their implications for the stability and efficiency of banking markets.
The findings of the CGFS Working Group are compiled in the report Structural changes in banking after the crisis. This report contains several key observations on structural changes in the banking sector after the crisis. First, while many large advanced economy banks have moved away from trading and cross-border activities, there does not appear to be clear evidence of a systemic retrenchment from core credit provision. Second, bank return on equity has declined across countries, and individual banks have experienced persistently weak earnings and poor investor sentiment, suggesting a need for further cost cutting and structural adjustments. Third, in line with the intended direction of the regulatory reforms, banks have significantly enhanced their balance sheet and funding resilience and curbed their involvement in certain complex activities.
Data covers 21 countries over the 2000-2016 period
The report also provides a comprehensive country-level dataset encompassing indicators of market structure, balance sheet composition, capitalisation and performance. The data, covering 21 countries over the 2000-2016 period, are provided in the annex tables of the report and in a data file for ease of use. Bank profitability has fallen from pre-crisis peaks but banks have become more resilient to risks, finds a new report by the Committee on the Global Financial System (CGFS). Over the past decade, banks’ balance sheets, cost base, scope of activities and geographic presence have been shaped by the impact of the crisis, as well as the resulting changes in regulation, competition and the macroeconomic landscape. The report outlines common trends but also differences across 21 countries. The banking system data, spanning the years 2000-16, are published alongside the report as a comprehensive reference tool.
Response of banks
“In response to their new operating landscape, banks have been re-assessing and adjusting their business strategies and models,” said CGFS chair William C Dudley, also President and Chief Executive Officer of the Federal Reserve Bank of New York. “At the same time, a number of advanced economy banking systems have to confront low profitability and legacy problems.”
Outcome report
The report finds that, since the crisis, banks have significantly strengthened their capital and liquidity buffers, as well as their funding structures, in line with the intended direction of regulatory reforms. A stronger banking sector now generally supports the flow of credit to the real economy, although conditions vary across the globe. Many banks directly affected by the crisis have shifted their businesses away from complex and trading activities and have become more selective in their international activities. In contrast, banks less affected by the crisis, including those in many emerging markets, have expanded internationally. The decline in bank return-on-equity from historically high pre-crisis rates partly reflects lower leverage and risk-taking, but also sluggish revenues and high costs. Longer-term profitability challenges could also signal overcapacity and the need for further structural adjustment supported by robust bank resolution frameworks.
Looking forward, bank supervisors point to scope for further improving risk management. Central banks must also remain alert to evolving system-wide risks.
Source: https://www.bis.org/
