Views on the integrity of global capital markets
09 April 2015

Bank Capital and Liquidity: Systemic Risk Council Tool Shows SIFIs’ Evolution Since 2007

Posted In: Systemic Risk
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Professional bank analysts are paid to stay abreast of how big financial companies are performing, when there are changes in their financial condition, and the quality of their governance. For the rest of us, whose jobs don’t involve the regular scouring of corporate filings for hints of future trends, we need help in determining not just whether financial stocks are a good investment, but also how the sector’s foundation is faring after years of slow recovery. It is for these people and these purposes, then, that the Systemic Risk Council’s new online interactive comparative tool will be most beneficial.

The Systemic Risk Council (SRC), you may recall, was created three years ago at the joint behest and funding of CFA Institute and the Pew Charitable Trusts. Its purpose is to gather the best, most senior minds in prudential bank oversight to seek changes that would at least mitigate future banking crises. The group boasts as its chair the estimable Sheila Bair (former chair of the FDIC), and as senior adviser, the legendary former Fed Chair Paul Volcker. It has lent its robust voice to such issues as capital, liquidity, and transparency adequacy for the largest and most systemically important financial institutions, or SIFIs.

The interactive tool was originally created by a group of analysts and researchers at the Federal Reserve Bank of Richmond with the goal to bring evidence of change — or, in some cases, lack thereof — that has taken place at the 10 named SIFIs in the United States since 2007. The tool ultimately was turned over to CFA Institute and Pew to finalize. On the basis of the high-quality data supplied by our Charlottesville, Va. neighbor, SNL Financial, we’ve been able to bring the vision of the interactive to life.

Even for a former Texas bank analyst like me (there was a time when such was independent and thriving), the tool is deceptively deep. In one mode, users can compare how individual institutions’ capital and liquidity have evolved since 2007. In another mode, users can compare up to three measures of performance or condition for up to three different SIFIs. Users can even compare how a bank has evolved relative to changes in macro-economic measures. I looked at Citibank, to take one example. Since 2008, it has shed enough assets — a couple hundred billion dollars’ worth — to create a significant bank of its own, even as its capital and liquidity picture has evolved.

It all seems simple, but the information provided is a complex look at whether and how the banking industry has improved its survivability. We ask you take a look and see what you think. We’d love to hear your feedback for future improvements.


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About the Author(s)
Jim Allen, CFA

Jim Allen, CFA, is head of Americas capital markets policy at CFA Institute. The capital markets group develops and promotes capital markets positions, policies, and standards.

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