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Structural changes in banking after the crisis

Bank for International Settlements

No 60 in CGFS Papers from Bank for International Settlements

Abstract: 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 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 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. 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. The report identifies several drivers behind these changes including exceptionally accommodative monetary policy, which provided ample central bank liquidity to the market and reduced the need for banks to trade reserves through the repo market, and changes in regulation, which have made intermediation more costly in terms of regulatory capital. Considered from the narrow perspective of repo markets, the balance between the costs and the benefits of these changes is unclear and differs across jurisdictions. The effect of market adaptations will require more time to mature. Measures that have been adopted by some central banks to reduce the scarcity of certain repo collateral, and others initiated in certain jurisdictions with the objective of facilitating monetary policy, have improved repo market functioning.

Date: 2018 Written 2018-01
ISBN: 978-92-9259-131-1
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