IIF: The Global Financial Industry is Stronger than Ever

The financial industry plays an integral part in the global economy, providing financing that fuels growth and job creation. In the eight years since the financial crisis, the industry has transformed itself.

“Without a doubt the system is safer, sounder and more robust than ever,” according to the Institute of International Finance. “We must now focus on ensuring that banks and other financial institutions continue to play their role in fueling growth and job creation.

Globally, banks have raised over $1 trillion in additional capital, increased liquidity and reduced leverage. Liquidity in the U.S. alone is now three times higher than what existed during the crisis.

Leverage has also decreased: U.S. banking sector leverage has fallen from 10.3x in 2008 to 9.3x in 2016; while Euro Area banks have dropped from 18x in 2008 to 13x in 2016.

“I do believe the enhancements that we have put in place to capital and liquidity requirements that are tailored by firm size and systemic importance have made an enormous difference to the safety and soundness of the U.S. financial system,” says Federal Reserve Chair Janet Yellen.

“The quantity of capital at the largest banking organizations is essentially doubled from before the crisis, and the quality of that capital is very much higher."

Large banks are not growing larger. In fact, three of the largest U.S. institutions are smaller and three others only became larger during the crisis because of government-forced acquisitions as part of an effort to stabilize the financial system.

Meanwhile, resolution road maps are now in place for regulators to wind down a bank in the case of significant financial trouble or reorganize them, as needed.

In fact, regulators in charge of resolution on both sides of the Atlantic have declared that any large bank failure can be resolved today with the tools in place, says the IIF.

 

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