OFR_2016_Financial-Stability-Report

Figure 63. Components of U.S. G-SIBs’ Operating
Income ($ billions)
Declines in provisions and expenses have exceeded
income declines since 2010
300
200
100
0
-100
-200
-300
-400
Net
Interest
Income
Provisions
Other
Income
Noninterest
Expenses
2010
2015
Pretax
Operating
Income
Note: Pretax operating income equals net interest and other
income less provisions and noninterest expenses. Other income
includes noninterest income and securities gains or losses. G-SIB
stands for global systemically important bank.
Sources: SNL Financial LC, OFR analysis
Figure 64. Change in Components of U.S. G-SIBs’
Noninterest Income, 2010-2015 ($ billions)
The greatest growth came in investment banking and
fiduciary activities
Wells Fargo
State Street
Morgan Stanley
JPMorgan Chase
Goldman Sachs
Citigroup
Bank of New York
Mellon
Bank of America
-15 -10 -5 0 5
Investment banking
Brokerage activities
Insurance activities
Fiduciary activities
Other
including noninterest income and securities gains, also
declined from 2010 to 2015. Declines in provisions for
loan losses and noninterest expenses more than offset
these income losses, boosting U.S. G-SIBs’ pre-tax
operating income in 2015 as compared to 2010. Given
the risks of higher defaults on commercial real estate
and nonfinancial corporate loans, provisions may rise,
further eroding profits from lending (see Section 2.2).
Some U.S. G-SIBs are responding to the net interest
income challenges by expanding their fee income from
noncommercial-banking activities. Figure 64 shows
that there has been growth in investment banking
and fiduciary (asset management) activities and, to a
lesser extent, securities brokerage. Most other sources
of noninterest income have declined. Public regulatory
reporting is insufficient to determine how these changes
affect the banks’ risk profiles.
Commercial banking risks historically centered on
bad loans and the potential for depositor runs, mitigated
by deposit insurance. Different risks arise from securities
dealing, underwriting, trading, over-the-counter
derivatives, and prime brokerage and asset management
services.
The ratio of risk-weighted assets to total assets can be
a useful gauge of risk-taking. The ratio provides information
about the average risk weighting the bank applies to
positions. For example, a ratio of 20 percent would be
consistent with a bank assigning positions an average risk
weight of 20 percent, which is the weighting of a senior
agency mortgage-backed security. From 2011 to 2015,
that ratio increased for seven of the eight U.S. G-SIBs
(see Figure 65). To what extent the increase has come
from increased risk-taking or more stringent U.S. riskbased
capital rules is not easy to determine. (As noted
in Section 2.1, risk weights can be subject to arbitrage.)
However, with the leverage ratio acting as the
binding regulatory constraint, some U.S. G-SIBs may
be letting their risk-weighted assets rise.
Note: G-SIB stands for global systemically important bank.
Sources: SNL Financial LC, OFR analysis
72 2016 | OFR Financial Stability Report