BankNotes Blog

FOR IMMEDIATE RELEASE: January 22, 2018&nbsp;CONTACT: Jen Scungio, (202) 457-8759&nbsp;WASHINGTON, D.C. — Today, the Financial Services Forum (Forum) announced Barbara Hagenbaugh will join the organization as Executive Vice President and Head of Communications. Hagenbaugh comes to the Forum from the Federal Deposit Insurance Corporation (FDIC), where she has served as chief spokesperson for the agency in her capacity as the Deputy to the Chairman for Communications.&nbsp;"We are extremely pleased to have Barbara join us," said Financial Services Forum CEO Kevin Fromer. "Her deep and wide range of financial policy experience will ensure the Forum effectively promotes public policies that help America’s largest banks support long-term economic growth."&nbsp;"Complex policy issues require both engaging and substantive communications and we look forward to having Barbara lead the Forum's efforts in this regard," he added.&nbsp;Beyond her role as advisor and spokesperson at the FDIC, Hagenbaugh has led a 14-person communications team that engages on regulatory reform, living wills, cybersecurity, resolution planning, new bank formation, and bank closings.&nbsp;Prior to the FDIC, Hagenbaugh was a senior media relations specialist at the Federal Reserve Board. There, she served as spokesperson on bank supervision and regulatory matters and communicated on the Federal Reserve's annual stress tests. She joined the Federal Reserve Board after 14 years as an economic and financial reporter at USA Today and Reuters.&nbsp;A graduate of the Medill School at Northwestern University with a degree in journalism, she resides in Arlington, Virginia.&nbsp;Hagenbaugh will begin her new role at the Financial Services Forum effective February 26, 2018.&nbsp;&nbsp;###&nbsp;&nbsp;<h3>About the Financial Services Forum&nbsp;</h3>The Financial Services Forum is a nonpartisan economic policy and advocacy organization comprised of the CEOs of the largest and most diversified banking organizations headquartered in the United States. The Forum pursues policies that encourage savings and investment, support deep and liquid capital markets, promote a competitive global marketplace, and ensure people everywhere have the opportunity to participate fully and productively in the 21st-century global economy. &nbsp;

Financial Services Forum Announces Barbara Hagenbaugh As Executive Vice President And Head Of Communications

JP Morgan Chase

Member News

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Bringing Those Outside of Banking In

Forum members have long been on the frontlines in the effort to bring unbanked and underbanked Americans into the financial mainstream. In particular, Financial Services Forum members were founding bank partners in a pilot program to provide low-cost, low-fee checking accounts, known as BankOn accounts, nearly a decade ago. There are now 12 million BankOn accounts at Forum member banks across the country. Our members will continue to be leaders in this effort to bring even more households into the banking system so they can help secure their financial future.

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Commitment to Affordable Housing

Forum members are playing a leading role in promoting affordable housing throughout the country. In 2023, Forum banks created or preserved nearly a quarter of a million affordable housing units.

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Supporting CDFIs and MDIs

We are supporting hundreds of Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) by providing over $11.5 billion in capital and financing since the beginning of 2020.

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Talent from all Backgrounds

Our members recognize that talent from all backgrounds bolsters competitiveness, and leads to better results for consumers, clients, and communities. Forum members are committed to providing opportunities to workers from across the country and fostering their success through professional development, networking, and support programs. 

We invested more than $11.5 billion in Community Development Financial Institutions since the beginning of 2020. 

Economic Opportunity for all Americans

JPMorgan Chase Commits $600M to Increase Homeownership Among Black and Latinx Families in Chicago

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<ul><li>We hold more than $4.2 trillion in loans, accounting for 40% of total lending to businesses and households.</li><li>We provide more than $679 billion, or nearly half, of all consumer loans by banks in the U.S., supporting everything from the purchase of a new car to furnishing a new home.</li><li>Lending by our institutions accounts for 34% of total commercial and industrial (C&amp;I) lending by banks, helping businesses grow and contribute to the economy.</li><li>We represent a major source of lending to small businesses in communities across the country, holding $126 billion in small business loans&nbsp;and allowing the economy to grow at both a local and national level.</li><li>We also collectively meet nearly three-quarters of the bank funding needs of other financial institutions, supporting community banks, insurance companies and mortgage finance companies, for example, which then provide important services to businesses and households.</li></ul>

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Lending

Our institutions lend to consumers, businesses and other financial institutions, promoting savings and investment that positions individuals and entities at all layers of the U.S. economy for resiliency and success. At the same time, we are supporting consumers, governments, and businesses of all sizes in growing and creating American jobs.

<ul><li>We underwrite nearly three-quarters of debt and equity transactions – such as initial public offerings – among large institutions in the U.S., providing a critical service that other U.S. institutions cannot offer on a similar scale.</li><li>With $4.2 trillion of mutual funds and annuities under management, we support the retirement and other savings needs of many Americans.</li><li>We finance a significant portion of state and local government expenditures for vital projects, like hospitals, roads, bridges, and schools, through $120 billion in municipal securities holdings. Additionally, we support a large portion of federal government expenditures through $1.1 trillion in U.S. Treasury securities holdings.</li></ul>

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Liquid Capital Markets

Our institutions help foster deep and liquid capital markets, ensuring the U.S. government and private institutions are able to effectively finance public spending and investments in the real economy. 

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Our Employees

Our institutions collectively employ more than 750,000 people, offering a variety of benefits and opportunities to help our employees achieve their personal and professional goals.

Forum members increased credit to businesses and households by 10%
to nearly $8.3 trillion in 2020.


Essential to the U.S. Economy    

In almost any idealized picture of a town square there is a local bank among the shops and people.&nbsp; Banks are centers of local activity where people cash their paychecks, save for their future, teach their kids about financial values, and get all sorts of information about local events that affect their daily lives.&nbsp; But how exactly does the presence of large banks in local communities affect those communities?&nbsp;<blockquote>In this post, we examine recent research suggesting that the presence of large banks in local communities improves consumer sentiment.&nbsp; We also provide specific examples of how Forum members contribute to the local economies they serve and discuss how these efforts may relate to this linkage.&nbsp;</blockquote>A recent <a href="https://sc.edu/study/colleges_schools/moore/documents/finance/berger/berger-irresberger-roman_may-2017.pdf">research paper</a> by economists from the University of South Carolina, Cardiff University and the Federal Reserve Bank of Kansas City considers the impact of the presence of large banks in a local area (a county) on the responses of households to a well-known and oft-cited survey of consumer sentiment conducted by the University of Michigan.&nbsp; The survey consists of five questions that gauge overall consumer sentiment with questions like: “We are interested in how people are getting along financially these days.&nbsp; Would you say that you (and your family living here) are better off or worse off financially than you were a year ago?”&nbsp; The researchers use all five questions to construct an index of consumer sentiment and then relate the sentiment among households in a local area to the share of large banks in that area from 2000 to 2014.&nbsp;The authors consistently find that as the share of large banks increases in a local community, consumer sentiment among households in that community rises.&nbsp; Of course, such a relationship could be driven by a number of confounding factors, but the researchers control for a wide range of such factors and still find a strong positive relationship between large bank presence and consumer sentiment.&nbsp; More still, the authors conduct a number of robustness tests including using various definitions of what constitutes a “large bank.”&nbsp; Interestingly, as the definition of “large bank” coincides with successively larger banks, they find that their empirical results strengthen.&nbsp; The presence of larger banks in a community causes an even greater increase in the consumer sentiment of households in that community.&nbsp;The authors suggest that the relationship between improved consumer sentiment and large bank presence may be driven by <a href="https://www.fsforum.com/types/press/blog/blog-when-bigger-is-beneficial-scale-economies-in-the-banking-industry/">economies of scale</a> in banking or by the fact that larger banks are generally safer as they are <a href="https://www.fsforum.com/types/press/blog/diversification-and-large-banks/">better diversified</a> and subject to more prudential regulation and supervision than small banks.&nbsp; Essentially, the authors theorize that the presence of better priced financial services from safer banks lead to a sense that economic conditions are generally better.&nbsp; While we fully agree that economies of scale and enhanced diversification are important and positive characteristics of large banks, we also think that the positive contributions large banks make to the local communities they serve may also be a source of improved consumer sentiment.&nbsp;<blockquote>Forum members, through their operation of over 16,000 bank branches, have a strong presence in local communities throughout America.&nbsp; What’s more, Forum members make regular, long-term investments and engage in ongoing activities to improve the economies and general well-being of the communities they serve.&nbsp;</blockquote>Consider the following recent examples of investments and activities sponsored by Forum members.&nbsp;<ul><li>In <a href="https://newsroom.bankofamerica.com/press-releases/community-development/ally-financial-bank-america-and-barings-announce-investment">Charlotte, North Carolina</a>, Bank of America is partnering with leading financial services companies to provide over $70 million in investment for affordable housing in the city and surrounding area, marking the largest private-sector commitment to affordable housing in Charlotte’s history. This project includes $50 million in below-market loans, $11 million invested in the newly proposed Housing Opportunity Investment Fund, $2.5 million in economic mobility programs, and a donation of $7.25 million of land in Uptown Charlotte. Through its investment, Bank of America is helping to provide equal access to housing in Charlotte for low- to moderate-income families.</li></ul>&nbsp;<ul><li>In <a href="https://clicktime.symantec.com/3GQKr1XAMsWah1gbBnXpHRd7Vc?u=https%3A%2F%2Fwww.bnymellon.com%2Fus%2Fen%2F_locale-assets%2Fpdf%2Fcsr%2F2017-csr-report.pdf">Dallas</a>,&nbsp;BNY Mellon administered the largest clean energy program loan ever made in Texas and the second largest in the nation.&nbsp; The project converted a historic landmark into apartments and commercial space.&nbsp; The new building is expected to save more than 6.6 million kilowatt hours of electricity, almost 700,000 gallons of water, and more than 3,500 metric tons of carbon dioxide per year, while contributing to the creation of over 100 new jobs in the Dallas area.&nbsp; In this way, BNY Mellon is contributing to a robust economy and a cleaner environment in Dallas.</li></ul>&nbsp;<ul><li>In Quincy, Massachusetts, in cooperation with MassHousing’s workforce housing initiative, Citigroup provided a $35 million construction loan to build a new <a href="https://www.citibank.com/icg/sa/flippingbook/2018/Global-Citizenship-Report-2017/files/assets/common/downloads/Global%20Citizenship%20Report%202017.pdf">apartment building</a> that serves people with incomes too high for subsidized housing yet not high enough to afford the Boston area’s expensive rental market. The 140-unit project includes the largest number of workforce housing units ever financed under MassHousing’s Workforce Housing initiative.&nbsp; This new building will give more people the opportunity to live near their jobs, spend less time commuting, and spend more time with their family and friends.</li></ul>&nbsp;<ul><li><a href="https://www.goldmansachs.com/what-we-do/investing-and-lending/impact-investing/salt-lake-city/index.html">Throughout Utah</a>, Goldman Sachs, along with partners from the public and private sectors, has committed over $950 million since 2009. These investments have resulted in over 4,700 affordable housing units, 550,000 square feet of retail, industrial, commercial and community space, 2,100 more students receiving early education, and 59 loans to underserved small businesses. &nbsp;As part of this commitment, in 2018, Goldman Sachs provided $49 million to finance the construction of the Hub of Opportunity, a transit-oriented, mixed-use development in Salt Lake County that includes 157 residential housing units, the majority of which will be leased to low- and moderate-income individuals. The project will reserve a portion of these units for individuals with disabilities and other special needs tenants, and will provide a unique combination of support services and workforce development opportunities directly targeting these residents</li></ul>&nbsp;<ul><li>In Detroit, JPMorgan Chase’s $150 million commitment to the <a href="https://www.jpmorganchase.com/corporate/Corporate-Responsibility/detroit.htm">city’s economic recovery</a> is helping more people move up the economic ladder and share in the rewards of a growing economy.&nbsp;In particular, 14,550 Detroiters have received job skills and training, and 1,800 small businesses have received technical assistance, leading to the creation of over 700 small business jobs.&nbsp;The investment has also deployed $50 million to create 1,500 housing units, 800 jobs and 176,000 square feet of commercial space.&nbsp;Finally, this commitment also provides the expertise of the firm’s employees to help the city come back, as JPMorgan Chase employees have donated over 15,000 hours of their time and expertise to help nonprofits revitalize the city where Chase is the largest bank and has served Detroit for over 80 years.</li></ul>&nbsp;<ul><li>In Cleveland, Morgan Stanley partnered with the Greater Cleveland Food Bank and other nonprofit partners in an effort to focus on public elementary school settings as the hub for delivering integrated nutrition, health and play programming to children and their families.&nbsp; The <a href="https://nam01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.morganstanley.com%2Fabout-us%2Fgiving-back%2Fhealthy-cities%2Fcleveland.html&amp;data=02%7C01%7Cdmontgomery%40feedingamerica.org%7C6645c75aeeef4f9fad5508d69ce38c5e%7Cb1f9e34f11214c708f88aff49a1ef321%7C0%7C0%7C636868898463432712&amp;sdata=KNf3osDNus0ABi9X9yeHZQlDnLC8pQH8TKsmwI%2FZrbQ%3D&amp;reserved=0">Healthy Cities Cleveland</a> initiative provided over 850,000 healthy meals, and served close to 2,000 students with fitness programs, health education, health screenings, and healthy snack programs.&nbsp; Morgan Stanley employees also donated over 2,000 hours of their time to the Healthy Cities Cleveland program while also participating in similar Healthy Cities programs in Chicago, Baltimore and New Orleans.</li></ul>&nbsp;<ul><li>In Boston, State Street leads a $20 million initiative to help prepare students for the workforce.&nbsp; The Boston Workforce Initiative Network (<a href="http://www.statestreet.com/values/BostonWINs.html">Boston WINs</a>) works with five non-profit partners to enhance access to careers for Boston’s youth to provide stable employment and economic mobility.&nbsp; Because each partner brings a unique strength, State Street has asked them to work together to deliver the full support students need to build meaningful careers. The goals with the Boston WINs program have been to increase college enrollment rates for Boston public high school students; ensure that once a Boston public high school student gets into college, they are successful; and enhance access to careers for Boston youth, leading to stable employment and economic mobility.</li></ul>&nbsp;<ul><li>In <a href="https://stories.wf.com/paradise-not-lost-wells-fargo-grant-helps-california-communities-rebuild-camp-fire/?cid=soc_fb_1901_112247">California</a>, Wells Fargo has donated more than $6 million to support people and communities affected by wildfires. In particular, Wells Fargo has donated more than $3.25 million to organizations in Butte County, where the deadly and tragic Camp Fire in 2018 burned nearly 150,000 acres, 19,000 homes and killed more than 80 people. &nbsp;In addition to direct financial assistance, Wells Fargo has also deployed its Mobile Response Unit to assist customers with disaster relief and insurance check processing.&nbsp; Through these actions, Wells Fargo is providing financial support and much-needed services to rebuild a community they serve.</li></ul>&nbsp;Each of the above examples shows how Forum members are making real commitments to the local communities they serve by investing their time and resources for the long term.&nbsp; These investments improve local communities and give people a real reason to feel good about Forum members as well as their overall economic prospects.&nbsp; Accordingly, while local community engagement is not specifically considered by the authors of the research study, and likely wouldn’t explain all of their findings, it is worth considering whether the involvement that large banks have in their local communities positively influences consumer sentiment.&nbsp; Such an effect would be consistent with the research findings and would make good sense as well.&nbsp; In any event, both systematic research and real-world examples provide evidence that large banks, including Forum members, are a source of positive influence on local communities that creates a virtuous cycle that benefits banks, households and businesses across the country.&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; &nbsp; &nbsp;

Large Banks and Local Communities: Supporting the Communities We Serve

FOR IMMEDIATE RELEASE:&nbsp;September 20, 2017&nbsp;CONTACT: Jen Scungio,&nbsp;(202) 457-8759&nbsp;WASHINGTON, D.C.&nbsp;— Today, the Financial Services Forum (Forum) announced the appointment of Kevin Fromer as its new President and CEO. &nbsp;In his new role, Fromer will lead the Forum to promote a healthy financial system that supports economic growth and opportunity for all Americans.&nbsp;"Our members serve our clients each day with the capabilities we bring to help them compete, produce jobs, and drive the economy forward," said Forum Chairman and Bank of America CEO Brian Moynihan. "Kevin has the experience to help us as we engage with policymakers on the best ways to promote growth and maintain financial stability."&nbsp;Fromer is currently Executive Vice President and Head of Government Affairs and Public Policy for HSBC North America Holdings, where he is responsible for public policy and government affairs at the federal and state levels. Before joining HSBC, Fromer was senior advisor to the chairman and chief executive of Legg Mason Global Asset Management. Between 2005 and 2009, he served as Assistant Secretary of the Treasury for Legislative Affairs in the U.S. Department of the Treasury. There he received the Alexander Hamilton Award, the Treasury Department's highest honor, for his contribution to the government's response to the financial crisis.&nbsp;"I am honored and eager to join the Financial Services Forum, an organization uniquely positioned to advocate for policies that will help the economy and encourage a competitive global marketplace," said Fromer.&nbsp;Prior to Treasury, Fromer worked on Capitol Hill as Assistant to the Speaker of the House of Representatives for Policy, Chief of Staff to U.S. Representative Harold Rogers (R-KY), and associate staff of the House Appropriations Committee.&nbsp;Fromer serves on the boards of the British American Business, Boys and Girls Clubs of Greater Washington, the National Presbyterian School, the Organization for International Investment, and the Corporate Advisory Council of Children’s National Health System. He is a graduate of the University of Virginia.&nbsp;###&nbsp;<h3>About the Financial Services Forum&nbsp;</h3>The&nbsp;Financial Services Forum&nbsp;is a non-partisan financial and economic policy organization comprised of the CEOs of the largest and most diversified financial services institutions with business operations in the United States. The purpose of the Forum is to pursue policies that encourage savings and investment, promote an open and competitive global marketplace, and ensure the opportunity of people everywhere to participate fully and productively in the 21st-century global economy.

Financial Services Forum Announces Kevin Fromer As New President And CEO

Letters

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Supporting Communities During the Pandemic

The COVID-19 pandemic is an unprecedented challenge for the world and the global economy and the largest U.S. banks are committed to supporting customers, clients, and the nation.

PPP loans from JPMorgan have supported 3 million workers at small businesses, including those working at Community Wellness Ventures, a mental health services company that serves children and families in Washington, D.C. The PPP loan has helped Dr. Charlayne Hayling-Williams and her husband, Dr. Rod Williams, continue to pay their counselors, social workers, psychologists and housing specialists so that they can continue to serve their community.The majority of Citibank’s PPP loans went to small businesses in the service sector. A PPP loan from Citi helped the Maryland Youth Ballet in Silver Spring retain teaching staff and find a way to teach students safely and retain employees. The students range in age from 2 to 19 years old. “If we hadn’t been able to receive this PPP loan, we wouldn’t be able to keep dancing,” Principal Deidre Byrne says. <a href="https://www.youtube.com/watch?v=dMzepw_oAtQ&amp;feature=youtu.be">Learn more</a>.State Street is a lead sponsor of <a href="https://www.smallbstrong.com/">Small Business Strong</a>, a non-profit organization helping women and minority owned small businesses navigate the devastating impact of the COVID-19 pandemic. Small Business Strong provides expedited, pro-bono resources to small businesses ranging from access to capital to consulting, business restructuring, business growth, digital marketing and customer engagement plans.Another way Forum banks have worked to assist small businesses is by supporting financial institutions with particularly strong connections to certain local communities. Forum banks have increased their support for Community Development Financial Institutions (CDFIs) during the pandemic. CDFIs are private financial institutions that are dedicated to providing responsible, affordable lending to help low-income and typically underserved communities. From 2015 to 2020, <a href="https://www.fsforum.com/wp-content/uploads/2021/01/cdfifactsheetfinal2021.jpg">Forum banks have invested nearly $9 billion in CDFIs.</a> Through such assistance, Forum member banks are working to ensure that small businesses in these communities get the help they need.Goldman Sachs last year committed $1 billion to support lending through CDFIs and other mission-driven lenders. More than 15,000 small businesses with 87,000 employees were supported just partway through the commitments. Nearly half of the initial funds went to businesses in minority communities; one-third went to those in low-income communities. <a href="https://www.forbes.com/sites/maneetahuja/2020/12/15/goldman-sachs-ceo-david-solomon-announces-additional-250-million-investment-in-small-businesses-bringing-total-2020-commitment-to-1-billion/?sh=3739ddc91000">Read more</a>.

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Supporting Small Businesses

Members of the Financial Services Forum have supported small businesses across the country throughout the pandemic, helping provide important resources during a challenging time for many business owners and their employees.

Throughout the pandemic, Forum members facilitated $94 billion in loans to nearly 1.25 million small businesses through the government Paycheck Protection Program. More than a quarter of these loans were made in low- and moderate-income communities and 91 percent of the PPP loans made by Forum members went to businesses with 20 or fewer employees.

At the beginning of 2020, Morgan Stanley launched the <a href="https://www.morganstanley.com/articles/alliance-for-childrens-mental-health-covid-19">Morgan Stanley Alliance for Children’s Mental Health</a> to help address children’s mental health, specifically the far-reaching challenges of stress, anxiety and depression. After the COVID-19 pandemic began, Morgan Stanley made an additional grant to the Child Mind Institute to provide digital mental health resources for children, adolescents and young adults, with a focus on vulnerable communities that traditionally lack access to these resources.Among other areas of focus, the Alliance is promoting public awareness of how the COVID-19 pandemic affects children’s mental health—both now and in the long term.In addition to providing relief to millions of customers, Wells Fargo has redirected millions of dollars from its philanthropic budget to COVID‑19 community relief efforts for the most impacted Americans. The company has worked to streamline grant making and offer highly flexible funding to nearly 1,000 nonprofits reaching more than 800 communities across the country.The program is making a difference in helping those who need it most access small business resources, stay in their homes and obtain financial health resources. In Alabama, a $100,000 grant to the Birmingham Strong Fund is providing emergency loans to small businesses to help stabilize employment, stimulate economic vitality, and offset losses related to COVID‑19. A $100,000 grant to United Way of Greater Los Angeles has helped the group create the Pandemic Relief Fund to support vulnerable populations who are at the greatest risk of health and economic impacts in this crisis. A $160,000 grant to the Institute of Community Alliances is providing rental assistance to shelter residents across the state of Iowa.Bank of America in 2020 announced a $1 billion, four-year commitment of additional support to help local communities address economic and racial inequality accelerated by the global pandemic. The programs are focused on assisting people and communities of color that have experienced a greater impact from the health crisis in areas that include:<ul><li>Virus testing, telemedicine, flu vaccination clinics, and other health services, with a special focus on communities of color.</li><li>Partnerships with historically black colleges and universities and Hispanic-serving institutions in the United States for hiring, research programs, and other areas of mutual opportunity.</li><li>Support to minority-owned small businesses, including clients and vendors.</li><li>Career reskilling/upskilling through partnerships with high schools and community colleges.</li><li>Operating support and investment for affordable housing/neighborhood revitalization, leveraging the company’s nearly $5 billion in Community Development Banking.</li><li>Further recruitment and retention of teammates in low- to moderate-income and disadvantaged communities to build on work the company has already done to serve clients locally.</li></ul>

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Supporting Communities

Forum members have collectively committed billions of dollars to communities in need. This aid is helping organizations and governments increase medical response capacity, address food insecurity, increase access to education in the face of school closures, protect impacted small businesses and provide support to the vulnerable populations.

Financial support is being dispersed to a number of organizations and programs such as the World Health Organization’s COVID-19 Solidarity Fund, the CDC Foundation, No Kid Hungry, Feeding America, National Centers for Disease Control and Prevention’s Emergency Relief Fund, the International Medical Corps and many other community-specific groups.

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Supporting Individuals

Forum members have been supporting their customers in a variety of ways, including by providing fee waivers, payment deferrals, and other assistance to help customers in need, with no negative credit bureau reporting for up-to-date clients.

Another key way in which large banks are serving households is the provision of safe, secure deposit accounts. 

People use deposit accounts as a safe store of value during uncertain times. With general economic uncertainty and an increase in market volatility, people are relying more on safe, liquid, bank deposits as they manage a variety of near-term risks. 

As people demand a safe store of value for their hard-earned money, Forum members have provided this critical service. Forum members provide depositors with a range of online services to access their deposits remotely, which are all the more valuable as people practice social distancing. 

Since the start of the crisis, <a href="https://www.bnymellon.com/us/en/insights/content-series/covid-19.html">Bank of New York Mellon</a> has worked to support its employees and their families with a number of actions and programs. The bank has provided paid leave benefits and an Employee Assistance Program for all employees and their direct family members, including a 24/7 COVID-19 support line. It is providing enhanced U.S. healthcare coverage so that COVID-19 testing and related outpatient services are provided without any employee out-of-pocket expense. The firm has also provided a 2-for-1 match for employee donations.

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Supporting Our Employees

Forum members are actively helping ensure the health and well-being of their more than 720,000 employees. 

From special compensation awards, to additional time off, to counseling services, the nation’s largest banks have been taking significant steps to support their workforces.

In 2020, Forum member institutions:<ul><li>Increased credit to businesses and households by $785 billion to nearly $8.3 trillion.</li><li>Helped raise $2.2 trillion in corporate bonds and $339 billion in equity through the third quarter for U.S. companies, allowing them to continue to pay their workers, operate their businesses and meet their funding needs. This capital raising by large banks fulfills a critical need in the economy to connect savers, such as pension funds and endowments, with companies like Pfizer and 3M that need to borrow capital for everyday business needs. <a href="https://www.fsforum.com/types/press/blog/building-bridges-between-savers-and-borrowers-during-the-pandemic-large-bank-underwriting/">Read more</a>.</li><li>Remained strong and resilient, despite the significant headwinds. The members of the Financial Services Forum in 2020 increased capital and strengthened their liquidity positions while at the same time supporting business and consumers.</li></ul>

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Supporting the Economy

Forum member institutions have been a key source of support for the economy during the pandemic. They have supported the economy in a number of important ways.



Throughout the pandemic, we facilitated $94 billion in PPP loans to nearly 1.25 million small businesses across the country.

COVID-19 Response

Forum Joins Coalition Advocating for Streamlined PPP Forgiveness

Banks, Credit Unions Call on SBA to Fix PPP Processing System

FOR IMMEDIATE RELEASE: May 27, 2015&nbsp;CONTACT:&nbsp;Laena Fallon,&nbsp;(202) 457-8783&nbsp;&nbsp;WASHINGTON, D.C. -&nbsp;Brian Moynihan, Chairman of the Financial Services Forum, today issued the following statement regarding the news that Rob Nichols will be leaving his position as President and CEO of the Forum for the American Bankers Association:&nbsp;"Rob has been a skillful Forum leader during a consequential decade for the financial system. On behalf of the members, I thank Rob for his service and wish him continued success as an effective voice in Washington helping policymakers better understand the important role that banks of all sizes play in driving the U.S. and global economy."&nbsp;###&nbsp;The Financial Services Forum is a non-partisan financial and economic policy organization comprised of the CEOs of&nbsp;18 of the largest and most diversified financial services institutions doing business in the United States. The purpose of the Forum is to pursue policies that encourage savings and investment, promote an open and competitive global marketplace, and ensure the opportunity of people everywhere to participate fully and productively in the 21st-century global economy.Follow the Forum on Twitter: <a href="http://twitter.com/fsforum">http://twitter.com/fsforum</a>

Forum Chairman Statement on Rob Nichols

FOR IMMEDIATE RELEASE:&nbsp;February 21, 2016&nbsp;WASHINGTON, D.C.&nbsp;–&nbsp;Today, SIFMA issued the followed joint statement from U.S. and EU trade associations and representative bodies calling for financial services to be fully covered in TTIP to help address market fragmentation:&nbsp;“Today, the undersigned trade associations and representative bodies, based in the United States and the European Union, issued the following statement reinforcing their strong support for a Transatlantic Trade and Investment Partnership (TTIP) that includes financial services regulatory coordination, in advance of the 12th round of negotiations to be held this week in Brussels beginning on February 22nd.&nbsp;“As the United States (U.S.) and the European Union (EU) enter the 12th round of negotiations of the Transatlantic Trade and Investment Partnership (TTIP) the financial and related professional services industry continues to support an ‘ambitious, comprehensive, and high-standard trade and investment agreement’. In order for TTIP to realize its full potential, we believe any agreement should treat financial services like every other sector in the negotiations and be dealt with in a comprehensive manner, primarily by including a framework for financial services regulatory cooperation but also through solutions to outstanding market access issues.&nbsp;“The financial services industry urges their representatives to step up negotiations on financial services which would help generate greater momentum in talks by resolving one of the most important outstanding issues in the ongoing discussions between the United States and the EU.&nbsp;“Financial services are extremely important to economies on both sides of the Atlantic. In the U.S., this industry directly accounts for over 7 per cent of GDP and 6 million jobs. In the EU, banks alone provide nearly 3 million jobs while the financial sector accounts for over 5 per cent of GDP.&nbsp;“But while financial services make an important economic contribution in their own right, they also create real economic growth by serving the companies and communities that function as the backbone of the economy – helping innovators develop technologies and supporting manufacturers and service suppliers by providing them with much needed capital.&nbsp;“The most pressing impediments to cross border finance between U.S. and EU capital markets are the result of insufficient regulatory cooperation.&nbsp;In addition, there are citizenship or residency requirements for managers or similar kinds of barriers in some EU countries or U.S. states which are outdated hurdles that should be removed.&nbsp;“Despite similar levels of standards, discrepancies between the two regimes often inhibit market participants from complying with both simultaneously. As a result, there has been increasing market fragmentation between the EU and U.S. markets but this at a time when leaders through the G20 and other fora have recognized the premium that should be attached to effective regulatory coordination.&nbsp;Neither the EU-U.S. Financial Markets Regulatory Dialogue nor the broader G20 processes have prevented these growing divergences and the associated economic costs. Something new is urgently needed.&nbsp;“TTIP provides a unique opportunity to create a strong structure for regulatory dialogue that would assure that regulators focus on cross-border issues as they are developing, heading off conflicts or unnecessary differences that could be avoided. A robust regulatory dialogue between the U.S. and EU, carried out under clear requirements agreed within TTIP by the respective financial supervisors, would reduce conflict and complexity and improve the efficiency of cross border regulations to the benefit of market participants and, as important, their customers and regulators.&nbsp;“There are three important characteristics that any successful regulatory dialogue should include and TTIP should recognize these:&nbsp;<ul><li>A focus on discussion at an early stage in the policymaking process - It is important for effective cross-border policy solutions that an avenue exists at the beginning of the process to work through the effects on market stability and institutions operating in both jurisdictions. A framework within TTIP could provide assurances that cross-border issues would be considered before, not after, they become problems.</li><li>A focus exclusively on future policymaking – We are not seeking changes in existing regulations via a TTIP agreement. However, as cross-border capital flows continue to grow, the transatlantic policy landscape will not stand still: rather, new rules and regulations affecting the financial services industry will continue to be devised as the industry and the world around it evolves. For example, almost six years after the U.S. passed the Dodd-Frank Act into law, there is increasing attention being paid by policymakers around the world to market conduct, data transfer, cyber security and fintech and these and other issues will require close regulatory coordination. In the EU, important questions regarding Capital Markets Union and Structural Banking Reform are being discussed – questions with policy implications that go well beyond the EU.&nbsp; Instituting a workable framework through TTIP would allow the international implications of these, and other emerging issues, to be discussed in a timely and effective way and increase the potential for delivering workable rules.</li><li>Retention of the prudential exemption – Financial services are covered in trade agreements but have long been subject to the so called prudential exception under which a financial regulator may impose regulation that is inconsistent with an FTA obligation for legitimate prudential reasons. This would continue with a new TTIP based framework. Policy on financial services regulation would, as now, remain entirely the preserve of financial regulators.</li></ul>“The financial services industry strongly supports further transatlantic economic integration in which TTIP would play a fundamental part. A comprehensive financial services chapter can play an important role in creating real growth and jobs on both sides of the Atlantic.&nbsp; We stand ready to work with you to help ensure that TTIP meets these goals.”&nbsp;Association For Financial Markets in Europe (AFME)&nbsp;BritishAmerican Business (BAB)&nbsp;British Bankers Association (BBA)&nbsp;Bundesverband der Wertpapierfirmen (BWF)&nbsp;European Banking Federation (EBF)&nbsp;European Services Forum (ESF)&nbsp;Financial Services Forum (FSF)&nbsp;Financial Services Roundtable (FSR)&nbsp;Institute of International Bankers (IIB)&nbsp;Institute of International Finance (IIF)&nbsp;Securities Industry and Financial Markets Association (SIFMA)&nbsp;TheCityUK&nbsp;Trans-Atlantic Business Council (TABC) &nbsp;

Forum Joins U.S. and EU Entities Urging TTIP to Include Full Coverage of Financial Services to Address Market Fragmentation

BNY Mellon

The coronavirus outbreak has been a massive shock to the financial system. Periods of heightened market volatility tend to coincide with limited balance sheet capacity due to tighter risk constraints. In this blog, we discuss the liquidity provision by large banks in the past few months in the broader context of the impact of regulatory reforms on market liquidity and market-making activities of dealers in the past several years. We provide evidence that dealers in the bond market provided liquidity and smoothed market reactions to COVID-19 shocks despite the decline in risk-taking capacity. &nbsp;A 2014 <a href="https://www.bis.org/publ/cgfs52.pdf">report</a> by a group of central banks, the Committee on the Global Financial System (CGFS), documented signs of reduced bond market liquidity because of declining bond dealer risk-taking capacity.&nbsp; The report identified several regulatory reforms that were expected to raise the costs of market making.&nbsp; To see the links between market making in over-the-counter (OTC) markets and regulatory costs, consider a market maker’s profit and loss (P&amp;L) account as shown in Figure 1. There are two broad categories of net revenues. First, facilitation revenues that reflect bid and ask spreads, net of the cost of trading. Second, the P&amp;L account is complemented by inventory revenues. These revenues are comprised from interest income and valuation gains generated by the asset held in inventory net of the cost of funding and hedging costs. Dealers often fund their market-making activities in repo markets. Regulatory market, counterparty, and credit risk capital requirements are other important cost components. As described in the report, hedging, funding, and regulatory capital costs have all increased significantly in the past ten years due to regulatory reforms.<figure class="image"><img src="https://fsforum.com/a/fsf_de218ca926/fsf_de218ca926.png" alt=""><figcaption>Figure 1: Market maker’s P&amp;L account. Other costs include, e.g., trading desk and support staff, compliance, and administrative costs. Other revenues may include income from other business lines, e.g. syndication, that is attributed to the market making desk. Source: <a href="https://www.bis.org/publ/cgfs52.pdf">CGFS (2014)</a>.</figcaption></figure>In sum, regulatory reforms have increased dealers’ market-making costs in the past several years, which has reduced their ability to supply trading and market-making services to their customers. The demand for trading and market-making services, however, has not decreased. The COVID-19 pandemic is a case in point for the corporate bond market.&nbsp; As risk and uncertainty have risen, the demand to trade corporate bonds has risen too as some market participants have sought to raise cash and hedge risk while others have sought to put risk capital to work.&nbsp; Against this backdrop, how have bond dealers with less committed capital to absorbing supply and demand imbalances reacted? Recent evidence suggests that large banks actively made markets for their customers and smoothed out some of the market reactions to COVID-19 shocks.Specifically, a new <a href="http://www.econ.ucla.edu/cbml/corporate-bond-liquidity.html">paper</a> by researchers at the Federal Reserve, UCLA, and the University of Illinois estimates dealers’ inventory accumulation between February 19 and March 30 of this year.&nbsp; Figure 2 presents the estimate of dealer inventory from their paper.&nbsp; On March 17, the Federal Reserve introduced the Primary Dealer Credit Facility (PDCF) to lend money to broker-dealers and take bonds as collateral. On March 23, the Fed announced it would buy bonds directly from companies issuing new corporate bonds, and that it would also buy bonds on the secondary market through the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF). Figure 2 shows that dealers absorbed some inventory in late February, before financial markets became stressed on March 5. At that point, dealer inventory leveled off. This trend continued until the introduction of the PDCF, PMCCF, and SMCCF.&nbsp; After March 18, dealer inventories rose from roughly $2.5 billion to $8.0 billion indicating a significant increase in bond inventories.&nbsp; Importantly, this inventory accumulation supported customer sell orders and moderated some price pressures that could have exacerbated bond market volatility. &nbsp;<figure class="image"><img src="https://fsforum.com/a/fsfgraph_adf57535a2/fsfgraph_adf57535a2.png" alt=""><figcaption>Figure 2: Cumulative inventory change in the dealer sector, USD billions. Shaded area represents 95% confidence bands. Source: <a href="http://www.econ.ucla.edu/cbml/corporate-bond-liquidity.html">Kargar et al (2020)</a>.</figcaption></figure>One of the policy implications of the 2014 CGFS report was that increased costs and reduced risk-taking capacity among dealers would require central banks to play an active role to help stabilize markets in stressed conditions.&nbsp; The COVID-19 pandemic largely bear out the report’s prediction.&nbsp; In the U.S., market reactions to recent shocks have been smoothed out to some extent with dealers’ market making along with the Federal Reserve’s liquidity provision and market interventions.&nbsp; Policymakers should review market functioning during the pandemic to assess the impact of regulatory reforms on large bank liquidity provision in key financial markets.

Large Bank Market Making During the COVID-19 Crisis

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Dear reader,Welcome to the latest edition of The Forum File. In this edition, we are highlighting one bank’s work to support underrepresented entrepreneurs.We hope you enjoy reading this edition and please do not hesitate to share your feedback.Kevin Fromer, President and CEO, Financial Services Forum<h2>Penny for Your Thoughts&nbsp;</h2>Selma Bueno is the Global Head of Morgan Stanley’s Inclusive Ventures Group<h3>Tell us about the Morgan Stanley Inclusive Ventures Lab and what makes it unique.</h3>The <a href="https://www.morganstanley.com/about-us/diversity/inclusive-ventures-lab">Morgan Stanley Inclusive Ventures Lab</a> was launched in 2017 to advance a more equitable investment landscape. We run a five-month accelerator program for founders of technology and technology-enabled startups in the seed to Series A funding round stage to develop and scale their businesses. In 2021, we expanded the Lab from North America to Europe, the Middle East and Africa, enabling us to support even more innovation and inclusion globally.&nbsp;What makes our program unique is its holistic approach to supporting portfolio companies. We invest $250,000 in each business, as well as provide a tailored curriculum, mentorship, networking, office space for the duration of the program and access to external advisors.To date, 92 companies, with a combined valuation of $923 million, have been through our accelerator program. The founders have collectively raised over $200 million in additional funding since their participation in the Lab.<h3>How does the Lab’s work align with Morgan Stanley’s Core Values?</h3>At Morgan Stanley, we are guided by five Core Values: do the right thing; put clients first; lead with exceptional ideas; commit to diversity and inclusion; and give back. I am proud to lead an initiative that integrates each of our values.The Lab was created to help shift the investment landscape and level the playing field for underrepresented entrepreneurs because it is the right thing to do, both for the founders we support and for the marketplace as a whole. By spotlighting innovative companies and giving them the platform and network they might need help accessing, we are driving innovation in business broadly.Our Lab’s cohort companies receive the full suite of Morgan Stanley resources and an ecosystem of internal and external partners to provide much-needed investment and guidance – as any client would. In connecting the founders with mentors and with one another, we are building a community in which previously overlooked entrepreneurs can succeed.<h3>Can you tell us how some of the Lab companies are driving inclusivity in the marketplace themselves?</h3>Many of our founders are leveraging their diverse backgrounds and communities’ values to address important gaps in the market and, in turn, advance a more equitable society.Some companies are working to tackle the critical issue of inequity in healthcare, like <a href="https://healthinherhue.com/">Health in Her HUE</a>, which connects Black women and women of color to culturally sensitive healthcare providers and <a href="https://www.gomedhaul.com/">MedHaul</a>, an online marketplace for healthcare providers to book non-emergency medical transportation for patients, based on their special needs.In the education tech space, <a href="https://imagilabs.com/">imagi</a> is using proprietary, inclusive education tools to empower kids to code, increase engagement among girls and help close the gender gap in tech early on.And <a href="https://www.zirtue.com/">Zirtue</a>, a relationship-based lending app that simplifies loans between friends and family, is making it easier than ever for people to access funds by tapping into the power of community support.What all of our cohort companies have in common, regardless of industry or product offering, is the founders’ innate desire to build a better world.&nbsp;<h2>Value Add</h2><figure class="image"><img src="https://fsforum.com/a/media/ivl-founders_crop-(002).jpg"></figure>The Inclusive Ventures Lab Demo Day is our annual showcase where founders can put all they have learned in the accelerator program to the test and raise their profiles with potential investors, business partners and customers.We hosted our ninth Demo Day in February for our largest audience yet of portfolio companies and potential investors. The investment firms in attendance represented over $40 billion of dry powder and indicated a high level of interest in the startups following the event.This latest showcase emphasized both market connectivity, with AI and sustainable solutions as cross-cutting themes, and the sheer range of innovation in our Lab, with companies representing industries such as healthcare, customer service, supply chain, recruiting and cybersecurity.In today’s challenging funding environment, it is incredibly important that we can provide our participating founders with the opportunity to attract capital, expand their networks and bring their game-changing products to scale.<h2>Capital Gains</h2>What we’re doing in Washington<figure class="image image_resized" style="width:79.95%;"><img src="https://fsforum.com/a/media/picture9.jpg"></figure>Forum Chief Economist Sean Campbell <a href="https://fsforum.com/news/icymi-transparency-in-stress-testing-essential-to-achieving-a-more-effective-efficient-and-resilient-financial-system">testified</a> before the House Financial Institutions and Monetary Policy Subcommittee on the need for greater transparency in the stress testing process. “Aligning stress tests with the public process afforded other bank regulatory standards would help improve public trust, promote economic stability, and ensure banks can support the economy to their fullest potential,” Dr. Campbell told lawmakers. Read Dr. Campbell’s full testimony <a href="https://fsforum.com/a/media/forum-dr.-sean-campbell-testifies-on-stress-testing_6.26.24.pdf">here</a> and learn more about stress testing <a href="https://fsforum.com/a/media/stress-testing-for-the-largest-us-banks.pdf">here</a>.&nbsp;Forum President and CEO Kevin Fromer <a href="https://fsforum.com/news/stress-tests-underscore-capital-strength-of-nation-s-largest-banks">issued</a> a statement in response to the Federal Reserve Board’s 2024 stress test results. “The results affirm that the additional capital requirements in the Basel III Endgame proposal are not justified,” Fromer said.The Forum <a href="https://fsforum.com/news/basel-changes-to-capital-surcharge-calculation-unwarranted">submitted</a> a comment letter on the proposed revisions to the methodology for capital surcharges for Global Systemically Important Banks to the Basel Committee on Banking Supervision. “Financial regulations that are not appropriately calibrated result in an inefficient financial system that misallocates capital in a way that can have a detrimental effect on the businesses and households that our member institutions serve, and on the U.S. and global economies as a whole, with no clear corresponding benefit to the resilience of the financial system,” the Forum said.<h2>Our Two Cents&nbsp;</h2>Research from the ForumThe Forum <a href="https://fsforum.com/a/media/forum-value-and-resiliency2024_q1.pdf">released</a> its latest data on the value and strength of the nation’s largest banks.<h2>Checking the Balance</h2>Members in the NewsThe Bank of America Boston Marathon Official Charity Program <a href="https://newsroom.bankofamerica.com/content/newsroom/press-releases/2024/05/128th-boston-marathon--presented-by-bank-of-america-raises-recor.html">raised</a> $45.7 million, contributing to the marathon’s record total of $71.9 million in charitable funds raised this year. The funds went toward nearly 160 non-profit organizations in the Greater Boston community.BNY <a href="https://linkprotect.cudasvc.com/url?a=https%3a%2f%2fwww.bnymellon.com%2fus%2fen%2fabout-us%2fnewsroom%2fcompany-news%2fthe-bank-of-new-york-mellon-corporation-introduces-updated-brand-bny.html&amp;c=E,1,klT35NUTsdUE8BdfT4UgWK1NuEOweXGzypcGVvsnG3INnu37FDoIoScI-Qc2tEiUAfOJodmwKYFxO1EsM5Re-Xc9fYsphx-mJKI0KwjsK55IQDvc&amp;typo=1">introduced</a> its new brand name and logo. The updated brand marks the firm’s evolution from America’s oldest bank, formerly known as BNY Mellon, to a global financial services leader.Citi Global Perspectives and Solutions <a href="https://www.citigroup.com/global/insights/citigps/ai-in-finance">published</a> a new report on AI &amp; Finance: Bot, Bank &amp; Beyond. The report analyzes the role that artificial intelligence might play in changing the way both consumers and companies bank.Goldman Sachs <a href="https://www.goldmansachs.com/our-firm/history/ipo-anniversary/index.html">commemorated</a> the 25th anniversary of its initial public offering. The firm’s leaders from past and present convened to ring the bell at the New York Stock Exchange.JPMorgan Chase <a href="https://www.jpmorganchase.com/newsroom/press-releases/2024/baltimore-philanthropic-commitment">announced</a> an $8.45 million philanthropic commitment to nonprofit organizations and programs across the city of Baltimore to support economic and community development. The funding addresses residential vacancies to stabilize the affordable housing supply, supports commercial corridor revitalization, and promotes small business growth.Morgan Stanley Foundation <a href="https://www.morganstanley.com/press-releases/morgan-stanley-foundation-8-million-grant-to-feeding-america#:~:text=Morgan%20Stanley%20(NYSE%3A%20MS),among%20children%20and%20underserved%20populations.">announced</a> an $8 million grant over four years to Feeding America to support the establishment or expansion of child and family feeding programs. Since 2009, Morgan Stanley’s funding for Feeding America has totaled more than $50 million, helping to deliver more than 356 million meals to children and families.State Street <a href="https://www.statestreet.com/us/en/asset-owner/insights/2024-markets-and-financing-research-retreat">hosted</a> its 2024 Markets and Financing Research Retreat. In collaboration with academic partners, guest speakers and strategists, the event dissected market trends, inflation, and other proprietary data-driven indicators.Wells Fargo Foundation <a href="https://newsroom.wf.com/English/news-releases/news-release-details/2024/100-Black-Men-of-America-and-Wells-Fargo-Expand-Junior-Investment-Club-with-600000-Grant/default.aspx">granted</a> $600,000 to 100 Black Men of America, a youth mentorship organization. This grant helps expand the organization’s Junior Investment Club, a curriculum-based simulation game that introduces young people to investing.

The Forum File, 2024 Edition #4 

Trades Back Federal Approach to Support LIBOR Transition

Today, we are all dealing with a global economic slowdown, the likes of which we have not seen for over a decade. One important difference between then and now is the position which Financial Services Forum members are in. Over the past decade, Forum members have bolstered their safety and soundness, raised capital and liquidity, and positioned themselves to serve the economy. In this post, we review the facts on large bank resilience and demonstrate one key way in which large banks are serving households and businesses – the provision of safe, secure deposit accounts.&nbsp; Forum members remain resilient with capital levels in excess of regulatory requirements and supported the economy during the first quarter through a $818 billion increase in deposit accounts used as a safe store of value by households and businesses during these uncertain times.<h3>Robust Capital and Liquidity</h3>Large banks have significantly increased their capital and liquidity over the past decade.&nbsp; As we have detailed in previous posts and <a href="https://fsforum.com/a/forum_value_and_resiliency_2019q4_3_2_20_b0e3c8dc44/forum_value_and_resiliency_2019q4_3_2_20_b0e3c8dc44.pdf">research</a>, Forum member capital has increased by more than 40 percent while liquid asset levels have doubled.&nbsp; Moreover, the strength and resilience of Forum members continues even as the economy deals with the fallout from the COVID-19 pandemic.&nbsp; Figure 1 below provides a recent assessment of capital levels at Forum members from their first quarter earnings releases.&nbsp; The figure shows, for each Forum member, their Q1 2020 common equity capital ratio alongside the regulatory requirement that includes the minimum required capital level and associated regulatory buffer.<figure class="image"><img src="https://fsforum.com/a/image_12_85e73328eb/image_12_85e73328eb.png" alt=""><figcaption>Source: Forum Members' Earnings Releases, OFR Bank Systemic Risk Monitor</figcaption></figure>As shown in the Figure, all Forum members maintain capital levels in excess of all requirements and regulatory buffers.&nbsp; The precise amount of additional capital maintained by each member depends on various factors such as the mix of business lines and activities at each firm. &nbsp;This strong capital position puts Forum members in a unique position to support the economy during the pandemic.&nbsp; Moreover, as we have referenced in previous posts on <a href="https://www.fsforum.com/types/press/blog/forum-members-help-companies-access-market-finance-during-the-pandemic/">market-based finance</a> and <a href="https://www.fsforum.com/types/press/unprecedented-increase-in-large-bank-lending-to-help-businesses-through-the-recovery/">business lending</a>, Forum members are using their resilience to serve the economy through increased lending and helping other companies to raise much-needed funds from public markets.&nbsp;&nbsp;<h3>Provision of Deposits for Households and Businesses</h3>While lending and capital raising are important to the economy, it is also important to recognize the role that Forum members play in providing a critical, but too often neglected, financial service – deposit accounts.&nbsp; People everywhere use deposit accounts as a safe store of value during uncertain times.&nbsp; Recently, financial market volatility has risen dramatically, leading people to rely more on safe, liquid, bank deposits as they manage a variety of near-term risks.&nbsp;&nbsp;&nbsp;Table 1 uses data from the <a href="https://www.federalreserve.gov/releases/h8/current/default.htm">Federal Reserve</a> and shows the quarterly percent change in deposits of large commercial banks for a number of different time periods.&nbsp; The final row of the table shows the percentage increase in deposits for Forum members during the first quarter of 2020.&nbsp;<figure class="table"><table><tbody><tr><td colspan="2">Table 1 Quarterly Deposit Growth</td></tr><tr><td>&nbsp;</td><td>Quarterly Change (%)</td></tr><tr><td>1986 - 2019 Average Large U.S. Commercial Bank</td><td>1.3</td></tr><tr><td>2020 Q1 Large U.S. Commercial Banks</td><td>8.8</td></tr><tr><td>2020 Q1 Forum Members</td><td>13.2</td></tr></tbody></table></figure>Source: Federal Reserve H.8, Forum Members' Earnings ReleasesDuring most quarters, bank deposits increase by a little more than one percent.&nbsp; In the first quarter of 2020, however, Forum members increased their deposit base by over 13 percent.&nbsp; This increase is large relative to both the historical average (1.3%) and the increase observed at all large U.S. commercial banks (8.8%).&nbsp; The total increase in deposits for Forum members of $818 billion during the first quarter represents an important financial service for businesses and households of all types and sizes throughout the country in these uncertain times.&nbsp; As people demand a safe store of value for their hard-earned money, Forum members have provided this critical service.&nbsp; Given the strength and resilience of Forum members, depositors can feel secure about the availability, liquidity, and safety of their deposits.&nbsp; Finally, it is also worth noting that Forum members provide depositors with a range of online services to access their deposits remotely, which are all the more valuable as people practice social distancing.<h3>Conclusion</h3>The COVID-19 pandemic has led to a substantial increase in economic, financial, and health-related risks.&nbsp; A natural reaction to an increase in risk is a move towards safer assets that can be relied upon when the rent is due or when someone needs to draw on their savings while out of work.&nbsp; Forum members have recently provided businesses and households with access to an additional $818 billion in safe, secure, and remotely accessible deposits.&nbsp; The significant strength and resilience of Forum members further bolsters the safety and security of these deposits.&nbsp;

Large Bank Resilience Supporting Depositors During the COVID Pandemic

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The Forum advocates for appropriate policy and regulation that promotes a strong, diverse financial system and supports the needs of our economy and American competitiveness.

Regulatory, other topics 

Comment Letter: Forum Outlines Recommendations to Improve Resolution Planning Process

<h3>Introduction</h3>The past several months have witnessed a severe economic and public health strain on our economy as the COVID-19 pandemic has impacted communities across the country.&nbsp; During this period, the pandemic has had a variety of unfortunate impacts on our economy, ranging from elevated unemployment to increased strains on specific sectors most affected by the virus’s fallout.&nbsp; At the same time, the overall health, safety and soundness of large banks has remained strong.&nbsp; Capital and liquidity levels have remained high throughout the pandemic while large banks have steadily supported the economy through lending and capital raising.&nbsp; In this post, we briefly review new <a href="https://libertystreeteconomics.newyorkfed.org/2020/11/how-has-covid-19-affected-banking-system-vulnerability.html">research</a> from the Federal Reserve Bank of New York (FRBNY) that shows overall risk in the banking sector is low.&nbsp; Specifically, the authors show that the current level of risk is substantially lower than during the last recession and that in some respects the banking sector has become less risky over the past few months.&nbsp; These findings are important because they provide a systematic and data-based assessment of the relative strength of the banking sector.<h3>FRBNY Risk Indicators and Trends in Large Bank Risk</h3>Economists at the FRBNY use data for the 50 largest banks to measure the level of bank risk between 2002 and today along four specific dimensions.<ol><li>Capital Vulnerability – what is the vulnerability of large bank capital levels to a macroeconomic shock?</li><li>Fire-Sale Vulnerability – what is the vulnerability of large banks to asset price devaluations resulting from forced sales of illiquid assets?</li><li>Liquidity Stress – what is the vulnerability of large banks stemming from a mismatch in the maturity of their assets and liabilities?</li><li>Run Vulnerability – what is the vulnerability of large banks to a loss of funding resulting from the inability to roll over short-term liabilities?</li></ol>The four measures, taken directly from the FRBNY research, are plotted in Figure 1 below.<figure class="image"><img src="https://fsforum.com/a/picture1_1_c999f6b957/picture1_1_c999f6b957.png" alt=""></figure>Figure 1 is a good illustration of the old adage “a picture is worth a thousand words.”&nbsp; The data clearly show that across each measure, risk in the large banking sector has declined markedly since the last recession.&nbsp; Simply put, the banking sector that we have today, from a risk perspective, bears little relation to the banking sector that we had a decade or more ago.&nbsp; To a large degree, this clear trend can be attributed to the fact that large banks are subject to a number of stringent standards for capital and liquidity and these standards have only gotten stronger over the past decade.The dotted line in the chart coincides with the onset of the COVID-19 pandemic.&nbsp; Overall, the risk measures do not show any significant increase since that time.&nbsp; Some of the metrics increase, some decrease and some are roughly unchanged.&nbsp; Moreover, focusing on the near-term wiggle and waggle of the data over the past several months risks losing the forest for the trees.&nbsp; Figure 1 clearly shows that large banks have become substantially less risky over the past decade and have continued to remain low risk during these challenging times as they have robustly supported the economy through increased <a href="https://www.fsforum.com/types/press/unprecedented-increase-in-large-bank-lending-to-help-businesses-through-the-recovery/">lending</a> and the provision of important financial services such as providing safe, liquid and remotely accessible <a href="https://www.fsforum.com/types/press/blog/large-bank-resilience-supporting-depositors-during-the-covid-pandemic/">deposits</a>.&nbsp;<h3>Conclusion</h3>Large banks and Financial Services Forum members, in particular, have played an active role in supporting the economy.&nbsp; Whether it be through supporting small businesses through the Paycheck Protection Program, other business lending, or the work that has been done to raise funding for companies that issue securities in public markets, the nation’s largest banks have been integral to supporting businesses and households in 2020.&nbsp; Large banks have been doing all of this work while at the same time operating safely and soundly at low risk levels that have declined substantially over the past decade.&nbsp; Forum members are committed to serving households and business across the country during this pandemic while also remaining committed to sound risk management that will only improve their ability to support the economy during this challenging period.&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Supporting the Economy Safely and Soundly – What the Data Say About Risk in the Large Bank Sector

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. Dodd-Frank, which spans more than 2,300 pages and created more than 400 new rules and mandates, established the financial regulatory framework that sets the guideposts within which banks of all sizes, particularly large financial institutions, operate. &nbsp;Ten years after the massive financial regulatory overhaul, the post-crisis regulatory framework remains intact. The strength and resilience of the American banking system today is the result of the substantial efforts and investment by policymakers, regulators and financial institutions across the country to achieve the shared goal of financial stability.<h2>The Lasting Legacy of the Dodd-Frank Act</h2>Dodd-Frank established a number of important measures to promote financial stability. Some of the most impactful include measures to promote resolvability, limit proprietary trading and create central clearing for certain financial instruments.<h3>Resolvability</h3>Dodd-Frank led to significant enhancements to the resolvability of financial institutions, improving stability within the U.S. financial system. Large banks now engage in an ongoing resolution planning process. Through the regular submission to the Federal Reserve and the FDIC of resolution plans, also known as living wills, large banks explain how they would undergo an orderly resolution in bankruptcy.As of the most recent review in December 2019, Forum members’ resolution plans were without deficiencies.The resolution plan process has led banks to decrease their organizational complexity. As seen in Figure 1, total subsidiaries at U.S. GSIBs have declined by roughly 40% since 2009.<figure class="image"><img src="https://fsforum.com/a/capture_151256acc1/capture_151256acc1.png" alt=""><figcaption>Source: National Information Center Data on Large Holding Companies</figcaption></figure>Dodd-Frank also created a backup resolution regime through the requirement of convertible long-term debt that is designed to facilitate the resolution of a large financial firm if bankruptcy were deemed not viable.&nbsp;The creation of this backup resolution regime means a large financial institution would be allowed to fail without resulting in significant spillover costs to the rest of the economy. As seen in Figure 2, Forum members - alone among U.S. banks - have issued in excess of $845 billion in long-term debt to support the backup resolution authority, more than doubling their loss-absorbing capacity since 2008.<figure class="image"><img src="https://fsforum.com/a/capture_1_8bdf544d12/capture_1_8bdf544d12.png" alt=""><figcaption>Source: Federal Reserve Y-9C, firm specific 10k forms, Federal Reserve Board “The Supervisory Capital Assessment Program”</figcaption></figure>There is <a href="https://www.fdic.gov/news/speeches/spfeb1618.html">broad recognition</a> that, taken together, these two parts of Dodd-Frank help ensure that all large banks, including Forum members, are no longer too big to fail.<h3>Proprietary Trading</h3>Dodd-Frank created the Volcker Rule to ban banks from proprietary trading and limit investments in and relationships with certain funds.&nbsp;Under the regulation, proprietary trading occurs when a bank trades in the short term for its own benefit without facilitating customer activities or hedging its own risks.&nbsp;To this day, the original intent of the rule has been preserved, with only minor modifications made to streamline the rule and reduce complexity. For example, in 2019 federal regulators finalized targeted revisions to simplify compliance requirements with the Volcker Rule and provide much-needed clarity. Last month, federal regulators took steps to simplify, tailor, and clarify the covered funds provisions included in Volcker while still preserving the intent of the rule. These updates helped to address longstanding, <a href="https://www.federalreserve.gov/newsevents/speech/tarullo20170404a.htm">bipartisan concerns</a> that the Volcker Rule was too complicated and too difficult to supervise, making it more difficult for banks to serve the needs of savers and investors.&nbsp;<h3>Derivatives Markets Reforms</h3>The structure and regulation of the derivatives market importantly have been transformed in the past decade.&nbsp;Two key changes are the substantial increase in central clearing of over-the-counter (OTC) derivatives and the mandated exchange of initial and variation margin on all OTC derivatives that are not centrally cleared.&nbsp; Central clearing is an important reform because clearing brings transparency and strict risk-management standards to derivative trading.&nbsp;As a result, the rise in central clearing has measurably reduced the scope for systemic risk to emanate from derivative markets. As shown in Figure 3, the substantial amounts of initial margin that are now being collected on both centrally cleared and non-centrally cleared derivatives have resulted in a materially safer and better managed derivatives market.<figure class="image"><img src="https://fsforum.com/a/capture_3_0f9e8d0d99/capture_3_0f9e8d0d99.png" alt=""><figcaption>Source: ISDA Margin Study Year-End 2018</figcaption></figure><h2>Forum Members are Safe, Sound &amp; Supporting the Economy</h2>In addition to the reforms put in place by the Dodd-Frank Act, other advances, such as enhanced capital requirements and heightened supervision, have laid a solid foundation for the safety of the nation’s largest banks in the past decade.These changes have led to a significant reduction in the expectation that large banks would receive taxpayer support if faced with severe financial distress. The Federal Reserve in its <a href="https://www.federalreserve.gov/publications/files/202005-supervision-and-regulation-report.pdf">Supervision and Regulation</a> report in May said against the backdrop of the pandemic, indicators in financial markets pointed to “the belief by investors that banks are more resilient and better positioned today than during the 2008 financial crisis.”Building on their position of strength, Forum members have been a tremendous source of support this year for consumers, customers and businesses weathering the economic impact of a global health pandemic. As seen in Figure 4, Forum members have greatly increased lending -- during the first quarter they increased lending to businesses of all sizes by more than 15 percent from the prior quarter, an unprecedented increase.2<figure class="image"><img src="https://fsforum.com/a/figure_4_3e8cbfd250/figure_4_3e8cbfd250.png" alt=""><figcaption>Source: Federal Reserve H.8, Forum member Q1 2020 earnings releases</figcaption></figure>Forum members are supporting small business as seen by their participation in the Paycheck Protection Program (PPP). As of June 10, Forum banks made or approved more than 773,000 PPP loans to small businesses, totaling nearly $70 billion. More than half of the loans by Forum members support small businesses with four employees or less and nearly 80 percent are for less than $100,000.Forum firms are also supporting the economy by providing safe, secure places for businesses and consumers to deposit their money. Shown by Table 1, in the first quarter, total deposits at Forum institutions rose more than 13 percent, an $818 billion increase, providing an important service to individuals and businesses in these uncertain times.<figure class="image"><img src="https://fsforum.com/a/table_1_ca848be2a2/table_1_ca848be2a2.png" alt=""><figcaption>Source: Federal Reserve H.8, Forum Members Earnings Releases</figcaption></figure><h2>Conclusion</h2>The Dodd-Frank Act laid the foundation for significant reforms in the financial regulatory system and 10 years later remains intact. Building on the strength developed over the past decade, members of the Financial Services Forum have been well-positioned to support customers, businesses and the economy since the onset of the COVID-19 pandemic. The nation’s largest banks are committed to being a source of strength for the economy in the months and years ahead, while preserving the hard-won gains in the strength and resiliency of the financial sector.

10 Years of the Dodd-Frank Act

Congress Should Exempt Stimulus Payments from Court-Ordered Garnishments

Forum, Trades Support Passage of Diversity Disclosure Legislation

CONTACT: Barbara Hagenbaugh(202) 457-8783 Washington, D.C. – Financial Services Forum President and CEO Kevin Fromer issued the following statement today after the Senate confirmed Dr. Janet Yellen as Treasury Secretary:“The Forum appreciates the quick confirmation of Dr. Janet Yellen as the 78th Secretary of the Treasury during this time of enormous economic challenge in our country.&nbsp;The members of the Forum look forward to working with Dr. Yellen and are committed to collaborating with the administration to build an inclusive and sustainable recovery.”###The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States.&nbsp; Forum member institutions are a leading source of lending and investment in the United States and serve&nbsp;millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, deep and liquid capital markets, a competitive global marketplace, and a sound financial system. Visit our NEW website: <a href="http://www.fsforum.com/">fsforum.com</a>&nbsp;Follow us on Twitter <a href="https://twitter.com/fsforum">@fsforum</a> and <a href="https://www.linkedin.com/company/financial-services-forum/">LinkedIn</a>

Financial Services Forum Welcomes Confirmation of Secretary Yellen

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Each year, the Federal Reserve tests the ability of large banks to continue to support the economy even in the face of a severe recession far worse than that experienced during the financial crisis.

Multiple hypothetical stress tests, as well as the real-life stress tests of the pandemic and the 2023 regional banking turmoil, have shown that the largest U.S. banks can – and do – act as a bulwark for the economy and the financial sector.

Stress Tests

<h3>Introduction</h3>In a recent Brookings <a href="https://www.brookings.edu/articles/reconsidering-the-regulatory-uses-of-stress-testing/">paper</a>, former Federal Reserve Gov. Daniel Tarullo discussed several potential policy changes to the stress testing regime.&nbsp; Each of the proposals would reduce the transparency of the bank capital regime and inject unwarranted and counterproductive uncertainty into the bank capital process.&nbsp; In this post, we discuss the issue of transparency in the stress tests and comment on the policy changes reviewed in the paper. &nbsp;<h3>Transparent Regulation is a Hallmark of Good Government and Good Capital Policy</h3>In his paper, Daniel Tarullo takes a dim view of transparency in the stress testing process and equates a call for transparency with efforts to “lobby for less dynamism in stress testing.”&nbsp; This claim only seeks to divert attention away from the simple fact that reduced transparency in government regulation is harmful to everyone.&nbsp; It is often said that “sunlight is the best disinfectant” and that a government that operates in the light of day is subjected to vigorous oversight that limits the exercise of arbitrary authority.&nbsp; The notion that the stress tests and financial stability stand to benefit from less and not more transparency stands in clear opposition to decades of experience and common standards of good governance.There is an unstated assumption embedded in the call for less transparency that if banks respond to the design of the stress tests, then they are “cheating.”&nbsp; This viewpoint portrays a deep, serious, and dangerous misunderstanding of how and why banks respond to capital regulation.&nbsp; Bank capital requirements are regulatory pronouncements about risk.&nbsp; Bank assets that are riskier require greater capital to withstand potential losses.&nbsp; Banks respond to capital requirements by trading off the economic benefit of holding the asset with the risk incurred by holding it.&nbsp; If an asset’s risk – either real or as perceived by regulators through capital requirements- increases, then banks have an incentive to reduce their holdings.&nbsp; When a bank engages in this practice it is typically considered good risk management rather than cheating.&nbsp;Moreover, this is exactly the dynamic that is created by existing risk-based capital requirements, or so-called “point-in-time” requirements.&nbsp; If a regulator’s assessment of housing risk results in an increase in housing-related regulatory capital requirements, as has happened in the context of the recent <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm">Basel 3 Endgame</a> capital proposal, banks should re-evaluate the tradeoff between the risk and return of holding housing assets.&nbsp; This is how banks manage their risk while allocating bank funding to its most productive use.&nbsp; Indeed, this very fact coupled with the fact that Basel 3 Endgame’s proposed changes are fully transparent has generated quite a lot of useful public comment that will positively impact the final regulation.&nbsp; Much the same would be achieved if the stress tests were subject to the same degree of public transparency.Oddly, there appears to be a belief that adapting to capital regulation in the context of “point-in-time” requirements is fine, but doing so in the context of dynamic capital requirements via stress tests is not.&nbsp; This is incorrect.&nbsp; Banks should respond to capital requirements and risk whether they be static or dynamic.&nbsp; Imagine that a particular coastal area becomes more prone to flooding because of recent beach erosion but insurance companies are not allowed to raise flood insurance premiums and home builders are required to continue building in the area.&nbsp; This would be crazy.&nbsp; Obviously, as conditions change, affected parties judiciously managing their risk should adapt.&nbsp; The notion that this basic truth is reversed in the case of bank capital stress tests is without any logical basis.<h3>More Opacity in Stress Testing Will Not Improve the Stress Tests</h3>Several of the policy options discussed in the paper would increase the opacity of the stress testing regime.&nbsp; Adding more opacity to the stress tests will not improve their ability to measure capital adequacy.&nbsp;Consider the policy option of including “second round effects” in the stress tests.&nbsp; Second round effects encompass a wide array of highly speculative economic impacts that could, hypothetically, be triggered by significant losses in the banking sector.&nbsp; One such example is the idea that significant bank losses would precipitate a wave of asset “fire sales” by banks that would then further depress asset prices and further erode bank capital.Such impacts are an interesting theoretical possibility but are far – far as in lightyears away– from being settled economic science.&nbsp; Economic modeling is quite unlike Newtonian physics.&nbsp; There are no clear and predictable relationships that are observed regularly with high precision that are backed by clear and (nearly) incontrovertible theories.&nbsp; Our ability to predict and model such “second round” impacts is little more than slightly informed guesswork not rooted in any definitive empirical or theoretical body of research.&nbsp; Rather, the inclusion of any such effects would be mere story telling by the unchecked dictate of Federal Reserve staff without any independent oversight on their modeling.&nbsp; Frankly, economists have quite enough trouble accurately estimating the immediate and direct (first round) impact of economic stress on bank capital levels.&nbsp; The idea that we should further complicate that exercise by including fanciful tales about what may or may not happen because of second or third round effects is a dangerous idea that would threaten the validity and empirical rigor of the stress tests. &nbsp;&nbsp; &nbsp; &nbsp;What would be achieved by adding such speculative impacts to the stress tests?&nbsp; More regulatory uncertainty and unchecked discretion thereby allowing regulators to unilaterally determine capital levels without having to explain or justify the rationale for their determinations.&nbsp; If capital is perceived as being too low, just go ahead and fire up the staff’s “fire sale scenario machine” and presto-change-o, new and higher bank capital! &nbsp; &nbsp;The paper discusses similar policy initiatives along the lines of allowing Federal Reserve staff to make frequent and undisclosed changes to the underlying statistical loss models that drive the stress testing process.&nbsp; Imagine such an approach being applied in any other regulatory context.&nbsp; For example, imagine that the government could simply decide to change the rule by which personal or corporate income taxes are determined without revealing these changes to the public.&nbsp; Or imagine that automobile safety standards were changed by the government without informing auto manufacturers of these changes so they could adapt to the new standards?&nbsp; These examples make clear that allowing for undisclosed and unchecked changes to the bank capital regime would only create chaos and frustrate banks’ ability to understand the regulatory landscape, which would impair their ability to channel resources to their highest and best economic use.&nbsp;<h3>Decoupling the Stress Tests from Capital Requirements: Unhelpful Policy Ping Pong</h3>Another policy option discussed in the paper, suggests that the link between the stress tests and capital requirements, that was implemented by the Federal Reserve in 2020 through the stress capital buffer (SCB) rule, should be abandoned.&nbsp; This policy proposal is highly problematic for two reasons.First, such a change would result in the sort of policy ping pong that typifies bad policymaking.&nbsp; Prior to the SCB rulemaking, the stress tests did not have a transparent and well-defined impact on bank capital requirements.&nbsp; At the time, then Governor Tarullo touted the SCB as a means of simplifying and streamlining the bank capital regime while clearly linking capital requirements to the results of the stress tests.&nbsp; Undoing all of that now would simply create more uncertainty in the regulatory process. &nbsp;Surely, ripping the stress tests out of the bank capital framework now would only invite some future policymaker to graft them back on.&nbsp; An ongoing and torturous cycle of – this year they’re in and next year they’re out until they are back in again would wreak havoc on the bank regulatory regime without offering any benefit.&nbsp; Year-to-year gyrations in capital rules generated by needless policy vacillation wouldn’t do anything but create a confused and ineffective regulatory system.Second, de-coupling the stress tests from capital requirements would only invite the sort of secretive “shadow regulation” that endangers the transparent and equitable administration of government. &nbsp;If the stress tests are not part of the formal capital regime that are governed by strict transparency standards, the stress tests could be used as a supervisory cudgel to achieve capital levels that could not otherwise be achieved through consistent and transparent capital regulation.&nbsp; This possibility would be even more likely if the stress tests could be changed and adjusted as regulators see fit without any public oversight.&nbsp; Open and transparent regulation is important to ensure that regulation is always applied consistently regardless of the prevailing winds of the moment.<h3>Conclusion</h3>Transparency in all forms of regulation and government administration is a long held and widely accepted standard of good governance.&nbsp; There is no compelling argument to abandon this transparency principle in the case of bank capital requirements and the stress tests.&nbsp; Banks must understand the capital rules to which they are subject so that they can appropriately allocate funding to its highest and best use for the economy.&nbsp; A regulatory capital regime that purposefully obfuscates the rules will only reduce the ability of banks to effectively allocate capital while creating counterproductive and dangerous policy uncertainty. &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;

Stress Testing and Star Chambers: Reducing Transparency Will Not Improve Stress Testing 

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Increases in capital requirements would harm American households, businesses, and the broader economy. Regulators must carefully consider the economic impact of higher capital requirements, because they affect the whole economy, not just banks.

Capital, other topics

Comment Letter: Federal Reserve Proposal to Establish Stress Capital Buffer

<h3>Introduction</h3>In the years following the financial crisis and subsequent reforms, much has been written on the work of regulators and banks to improve the resiliency of large financial institutions.&nbsp; Banks have performed exceptionally well during the pandemic, which has served as the first real test of those improvements.&nbsp; Coinciding with that experience, the Financial Stability Board (FSB) released its final <a href="https://www.fsb.org/2021/03/evaluation-of-the-effects-of-too-big-to-fail-reforms-final-report/">report</a> on March 31 evaluating the effects of too-big-too-fail reforms.&nbsp; The FSB wrote that “[t]he evaluation suggests that reforms have reduced systemic risks, enhanced the credibility of resolution and market discipline, and ultimately produced net benefits for society.”&nbsp; It is important to note several key findings in the FSB report that are particularly relevant for U.S. Global Systemically Important Banks (GSIBs), all of which are Financial Services Forum members.&nbsp; Also important is one finding from the study that is drawn broadly and therefore does not reflect the impact of reforms on the U.S. GSIBs.<h3>The FSB Found Clear Improvements to Resiliency, Market Discipline and Resolvability</h3>The FSB report rightly acknowledges the important and successful role played by total loss absorbing capacity requirements (TLAC) in improving the resiliency of GSIBs and improving the credibility of the resolution process.&nbsp; As we have discussed <a href="https://www.fsforum.com/types/press/blog/total-loss-absorbency-and-financial-resiliency/">before</a>, he Federal Reserve requires all Forum members – and only Forum members –&nbsp; to issue significant amounts of long-term debt to external third parties, that can be used to absorb losses and re-capitalize their institutions in the event of outsized financial losses.&nbsp; In this context, private funding is intended to eliminate the need for public funding – a key post-crisis objective.&nbsp; The FSB report shows the significant strides made in the U.S. relative to other jurisdictions.&nbsp; Specifically, the report shows that the amount of TLAC issued by Forum members, relative to their overall size, outpaces that of other jurisdictions.&nbsp; As we stated in our earlier <a href="https://fsforum.com/a/fsf_tbtf_evaluation_0f8fafd515/fsf_tbtf_evaluation_0f8fafd515.pdf">comment letter</a> on the draft FSB report, we believe that it is crucial to recognize important differences in the effectiveness of these and other reforms in the U.S. versus other jurisdictions.&nbsp; The figure below from the FSB report depicts those differences<figure class="image"><img src="https://fsforum.com/a/screen_shot_2021_04_26_at_12_52_17_pm_1024x855_7ab9fe96e3/screen_shot_2021_04_26_at_12_52_17_pm_1024x855_7ab9fe96e3.png" alt=""></figure>The chart shows the average ratio of TLAC to the leverage exposure of GSIBs across major jurisdictions.&nbsp; As can be seen in the chart, in the U.S., Forum members maintain roughly a 13 percent ratio of TLAC to leverage exposure, which is significantly higher than any other jurisdiction.&nbsp; Accordingly, the FSB report notes that Forum members are held to rigorous TLAC standards that surpass those in other jurisdictions.The FSB also points out that market discipline among bank investors has improved markedly.&nbsp; Specifically, the report cites the fact that credit rating agencies have removed their assumption of government support for GSIBs in a number of jurisdictions.&nbsp; Importantly, the U.S. is one such jurisdiction where credit rating agencies have removed the “ratings uplift,” which is the increase in value of a GSIB’s debt associated with an assumption of government support in the event of financial stress.&nbsp;The FSB also found that “[r]isks arising from the shift of credit intermediation to non-bank financial intermediaries should continue to be closely monitored.”&nbsp; The past decade has seen a marked increase in the size of the non-bank financial sector relative to the regulated banking sector and the FSB report discusses the need to closely monitor the risk arising from this trend.&nbsp; Specifically, the report points to evidence from the pandemic that suggests “[t]he acute phase of the financial impacts of the COVID-19 pandemic in March 2020 suggests that some parts of the non-bank financial intermediation sector acted as propagators of the liquidity stress.”&nbsp; As a result, the FSB is continuing to study and assess the impact of the growth of the non-bank financial sector on financial stability.&nbsp; This work is important and we look forward to reviewing its findings.<h3>Funding Costs for U.S. GSIBs</h3>One finding that does not take account of the U.S. experience is the funding cost advantages attributed to GSIBs.&nbsp; The report claims that funding advantages for GSIBs, globally, are no different than they were in 2007.&nbsp; While that may be true in the aggregate for the 30 GSIBs, it is not consistent with the facts and research in the case of U.S. GSIBs.&nbsp;Recent <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3497897">research</a> by economists at Stanford University and Australian National University, convincingly shows that funding costs for U.S. GSIBs have risen significantly since 2007 and have remained elevated since that time.&nbsp; The figure below, taken directly from the research, shows:&nbsp; 1) the funding cost of U.S. GSIBs in the form of credit default swap rates from 2001-2007, and 2) the funding cost of U.S. GSIBs since 2007 (blue line) relative to the funding cost they would have faced had there been no change in funding costs for U.S. GSIBs (red line).&nbsp; The data and analysis in the figure clearly show that funding costs for Forum members have risen substantially since 2007 and have remained elevated over the entire period.<figure class="image"><img src="https://fsforum.com/a/screen_shot_2021_04_26_at_12_54_17_pm_1024x532_d00a913c2a/screen_shot_2021_04_26_at_12_54_17_pm_1024x532_d00a913c2a.png" alt=""></figure>&nbsp;<h3>Conclusion</h3>Without question, the combination of reforms by banks and regulators has significantly improved the resiliency and resolvability of Forum members.&nbsp; And the experience in the U.S. has generally been superior to that of other jurisdictions.&nbsp; The effectiveness of these reforms is also reflected by improved market discipline and increased funding costs for Forum members.&nbsp; The FSB report should give policymakers and the public additional confidence about the strength of the U.S. banking system, which has been strong and supported the economy over the course of the pandemic.&nbsp; &nbsp;

Large Bank Strength and Resilience - A Reaction to the Financial Stability Board Evaluation of TBTF

Additional PPP Funds Needed for Small Businesses, Employees

Goldman Sachs

Goldman Sachs Committed To Increase Their Spending With Diverse Vendors By 50% By 2025

Press Releases

FOR IMMEDIATE RELEASE&nbsp;CONTACT: <a href="mailto:jlawless@fsforum.com">Julia Lawless</a>, (202) 457-8766 &nbsp;&nbsp;WASHINGTON, D.C. –&nbsp;Financial Services Forum President and CEO Kevin Fromer issued the following statement today after the Federal Reserve Board released the scenarios large&nbsp;financial institutions will use for the 2019 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises:&nbsp;“Once again, the health and viability of the nation’s largest banks will be measured using a severe economic scenario intended to be consistent with a deep, post-war recession.&nbsp; We look forward to reviewing the scenario to understand how it achieves this standard.&nbsp; The Fed has rightly recognized the strength and resilience of large financial institutions, whose strong capital and liquidity positions have prepared them to promote growth and opportunity even during times of severe financial and economic distress. The Forum supports federal regulators’ commitment to modernize the current stress test regime and will work to maintain a safe and sound financial system that can be further improved in part through greater transparency.”&nbsp;<h3>Background:&nbsp;</h3>Each year, the Federal Reserve releases CCAR scenarios to evaluate the resilience of individual financial institutions and measure how a firm would fare in a severe economic downturn. A financial institution must demonstrate it has adequate capital to absorb losses.&nbsp;Vice Chairman for Supervision Randy Quarles, <a href="https://www.federalreserve.gov/newsevents/speech/quarles20181109a.htm">in November</a>, outlined ways the Federal Reserve could “increase both the transparency and the efficiency of the stress testing regime.”&nbsp;In December, the Federal Reserve issued its inaugural Financial Stability Report, which provides an overview of the health of the U.S. financial system. Specifically, the <a href="https://www.federalreserve.gov/publications/files/financial-stability-report-201811.pdf">report</a> noted, “The banking sector is resilient…as evidenced by high levels of capital and liquidity.”&nbsp;Forum member institutions, alone, have increased their capital by 40 percent from nine years ago to $900 billion; more than doubled their liquid assets since 2010; and simplified their corporate structures.&nbsp;To learn more about how large U.S. financial institutions are safe and sound and supporting the economy click <a href="https://www.fsforum.com/types/press/blog/blog-ten-years-later-taking-stock-of-the-progress-made-after-the-financial-crisis-and-looking-to-the-future/">here</a>.###&nbsp;The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States.&nbsp; Forum member institutions are a leading source of lending and investment in the United States and serve&nbsp;millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.&nbsp;Visit our website: <a href="http://www.fsforum.com/">fsforum.com</a>Follow us on Twitter <a href="https://twitter.com/fsforum">@fsforum</a> and <a href="https://www.linkedin.com/company/financial-services-forum/">LinkedIn</a>&nbsp; &nbsp;

Financial Services Forum Statement on Stress Test Scenarios

Citi

Citi Launches More Than $1 Billion in Strategic Initiatives to Help Close the Racial Wealth Gap

BNY Mellon Commits $20 Million to Fund the Future Workforce

Today we are officially relaunching the Financial Services Forum with a number of activities, including the unveiling of this, our new website.&nbsp;The Forum CEOs lead the most diversified global financial institutions headquartered in the United States.&nbsp; They have reconstituted the organization to be the leading voice for their firms, and given me a mandate to effectively communicate the value of their institutions in the economy, to advocate for their positions on key policy matters, and to establish a strong research program that provides information and analysis on key issues and on the contributions of this vital segment of the financial industry.&nbsp;Much progress has been made over the past seven months.&nbsp; We have hired talented, seasoned staff in our three focus areas – communications, government and industry relations, and policy research.&nbsp; These individuals have decades of experience working on Capitol Hill, at bank regulatory agencies, in the administration, in academia, and in the private sector.&nbsp;We have reinvigorated our engagement with key stakeholders, including those on Capitol Hill, in the administration, and at independent regulatory agencies as well as with members of the media and thought leaders.&nbsp; We have created a forum for our members and their staffs to collaborate productively on issues of importance.&nbsp;Working with our member institutions, we have initially focused our policy work on the review of the regulatory framework to achieve better efficiency and effectiveness.&nbsp; This includes reviews of the calibration of overlapping capital requirements and the impacts and implementation of the Volcker Rule.&nbsp; These are important and often complex discussions, but they are necessary to help ensure that we can support economic growth while preserving safety and soundness.&nbsp;Our eight institutions make unique and vital contributions to the U.S. economy, support our communities, and provide a resilient and strong foundation for our financial system.&nbsp; They are a primary source of all loans provided to businesses and households and meet three-quarters of the funding needs of other financial institutions.&nbsp; They underpin the world’s deepest and most liquid capital markets, which support new investments by U.S. businesses.&nbsp;<blockquote>Our eight institutions make unique and vital contributions to the U.S. economy, support our communities, and provide a resilient and strong foundation for our financial system.</blockquote>Our member firms are strong, resilient, and positioned to sustain economic growth and opportunity.&nbsp; We have significantly increased the quantity and quality of capital in the past nine years and we have raised the amount of high-quality liquid assets – assets that can act as a cushion against financial shocks – by 80 percent.&nbsp; We and our regulators have taken other steps that have led to a stronger, more resilient financial system.&nbsp;We agree with a number of regulators, analysts, and others who have suggested that with the benefit of years of experience and data since implementation, it is appropriate and necessary to step back and evaluate all the regulations and supervisory practices that have been put in place in the past decade.&nbsp; We need to evaluate if these measures are effective and are not unnecessarily raising costs that impede the ability of our organizations to provide credit to support growth of the economy.&nbsp;It is an important time at the Financial Services Forum and for our members.&nbsp; We look forward to continued progress in the months and years ahead as we represent these institutions that are so important to consumers, businesses, and communities across the United States. &nbsp;

Reintroducing the Forum

Bank of America

Bank of America Announces $1 Billion/4-Year Commitment to Support Economic Opportunity Initiatives

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Dear reader,Welcome to the latest edition of The Forum File. In this edition, we are highlighting our firms’ work in advancing economic opportunities for women and minority entrepreneurs.We hope you enjoy reading this edition and please do not hesitate to share your feedback.&nbsp;Kevin Fromer, President and CEO, Financial Services Forum&nbsp;&nbsp;<h2>Penny For Your Thoughts</h2>Karim Assef, Chairman of Global Investment Banking at Bank of America Merrill Lynch&nbsp;<h3>How is Bank of America investing in and supporting diverse entrepreneurs?</h3>The challenges that minority and women entrepreneurs face, especially when it comes to securing capital to start or grow their businesses, are steep and universal. Despite record levels of venture capital investment over the past decade, only about 2% has gone to Black or Hispanic founders. Further, <a href="https://newsroom.bankofamerica.com/content/dam/newsroom/docs/2021/2021%20Women%20Business%20Owner%20Spotlight.pdf">Bank of America’s 2021 Women Business Owner Spotlight</a> found that 42% of women small business owners have never applied for a business loan or line of credit. Addressing this gap in resources requires significant change. That’s why, as part of our focus on advancing racial equality and economic opportunity, Bank of America dedicated $350 million toward investments in funds who share the mission of providing growth capital to these under-represented entrepreneurs.Since our program began in late 2020, we have committed more than $300 million to over 100 investment funds across the U.S. These funds provide capital to Black, Hispanic-Latino, Asian, Native American, and other under-represented minority and women entrepreneurs to help them establish and grow their businesses. The intended impact is multi-tiered, as the funds themselves are managed by diverse investors, who in turn invest their equity in companies founded by minority and women entrepreneurs. The combination helps drive success and representation at both levels, which then hopefully leads to progress at a third level, the creation of better jobs for under-represented workers.<h3>How does Bank of America allocate these funds to ensure they are reaching populations in need?</h3>While our primary focus is reaching under-represented founders and companies in order to address the funding gap, the vast majority of the investment fund managers themselves are diverse. Of the funds in our portfolio, 67% are led by Black/African American managers; 24% are led by Hispanic-Latino managers; and 57% are led by women. Importantly, and while these funds are clearly addressing a societal need, they have the ability to reach and connect with entrepreneurs who are generally outside the scope of the mainstream venture capital industry. Most of these funds already boast impressive success stories among the companies in which they’ve invested.&nbsp; We hope to see many more over the coming years. We expect our growing portfolio of funds to invest in 3,000+ minority- and women-led companies over the next five years. Beyond providing capital, the funds also connect these business owners to new groups of potential advisors and mentors, as well as new customers and investors who ultimately help their businesses thrive.<h3>What is the longer-term impact you hope to have as your investment program continues?</h3>Investing our capital is only a first step and arguably the most straightforward one for a large institution such as Bank of America. We hope that others follow our lead such that the overall amount of capital available to under-represented founders continues to increase. But our greater hope is that the impact helps create opportunities over the long term. As these investment funds get established and scale in size, they have greater ability to catalyze the success of diverse founders and the growth of their companies, which in turn could create more jobs for diverse workers.For example, in March of this year, Bank of America announced an investment in Overlooked Ventures, an Ohio-based fund that focuses on investing in diverse founding startup teams whose companies are comprised of one or more historically ignored founders. Its portfolio is comprised of 42% Black founders and 16% Hispanic-Latino founders, with the remaining 42% made up of Indian, Iranian, Syrian, and Ashkenazi Jew founders.&nbsp; As these companies grow, our hope is that they are more likely to hire and promote diverse workers, creating a multiplier effect.As the funds in our portfolio continue to build their portfolios of companies, we hope to provide further support to both the founders and their companies through our traditional banking services as well as by providing mentorship and advice. Capital is only the first step and certainly not the only area in which the under-represented face challenges. Our plan is to help support the growth of the funds and their companies over the longer term. &nbsp;<h2>Value Add</h2>Bank of America Institute for Women’s Entrepreneurship at Cornell Program Expansion&nbsp;<figure class="image"><img src="https://fsforum.com/a/media/screen-shot-2022-05-18-at-11.33.29-am.png"></figure>&nbsp;In March of this year, Bank of America announced a further expansion of the <a href="https://urldefense.com/v3/__https:/about.bankofamerica.com/en/making-an-impact/institute-for-womens-entrepreneurship-at-cornell__;!!Gajz09w!BuYAZz7JuwUIp4solaq11mwjGbs9uZ8jSFGf5PvahuU7OSA72s-RVYHvjKwJzaDUBJjmIo1IUnDNnOch43fLZtGva6IYisM$">Bank of America Institute for Women’s Entrepreneurship at Cornell University</a>, doubling the number of program seats to 100,000 and further enabling women entrepreneurs to gain critical knowledge to drive their businesses forward. Since its launch in 2018, the Bank of America Institute for Women’s Entrepreneurship at Cornell has enrolled individuals from the U.S. and 120 additional countries, primarily women, of whom 90% identify as women of color. Registration is open to anyone worldwide, regardless of gender, educational background or business stage.As the only Ivy League program offering a certificate in women’s entrepreneurship, at no cost, the program offers enrollees courses focused on areas such as finance, product development, marketing, leadership, communications, and legal and compliance requirements, as well as opportunities to build professional networks. The instructor-led classes and limited class sizes provide women the opportunity to learn new skills while connecting with a vibrant network of entrepreneurs and social innovators. Additionally, the Institute has developed a Spanish language curriculum and hired Spanish-speaking teaching assistants to more effectively reach Hispanic/Latino entrepreneurs.This expansion is just one way the bank is continuing to advance racial equality and economic opportunity in the communities it serves. In order to drive real progress, we recognize that we share in the responsibility to do more. We also know we can’t solve these challenges alone, so we’re partnering with other corporations, local nonproﬁts and community leaders across the country who share our vision for creating meaningful change. Bank of America’s long-standing partnerships with the Tory Burch Foundation, Vital Voices, the Cherie Blair Foundation and Kiva have helped an additional 75,000 women from more than 140 countries grow their businesses.&nbsp;<h2>Capital Gains</h2>What we’re doing in Washington&nbsp;&nbsp;The Forum and other trade associations sent a <a href="https://fsforum.com/a/media/importance-of-appropriate-length-of-comment-periods.pdf">letter</a> to SEC Chairman Gary Gensler highlighting the need for meaningful public input in the SEC rulemaking process and expressing concern that the SEC’s “overlapping and serially short comment periods simply do not provide the public time to fully analyze, consider, and comment on these rule proposals, including the time that it takes to study and analyze the market and economic implications of the proposals and identify possible unintended, negative consequences.” The letter further points out that “The Commission’s current approach to setting the comment periods for its numerous rule proposals not only deviates from case law, federal standards, and guidance on appropriate rulemaking procedure, but also, significantly veers from the Commission’s recent approach to this process.”We <a href="https://fsforum.com/a/media/key-facts.pdf">highlighted</a> the significant contributions that Forum member institutions made across the country over the past year.The Forum and the Bank Policy Institute authored a <a href="https://fsforum.com/a/media/letter-to-house-in-support-of-fair-hiring-in-banking-act.pdf">letter</a> to the House of Representatives urging the passage of H.R. 5911, the “Fair Hiring in Banking Act,” which makes improvements to Section 19 of the Federal Deposit Insurance Act to allow banks to provide employment opportunities for rehabilitated job seekers with criminal records.&nbsp;<h2>Our Two Cents</h2>Research from the Forum&nbsp;The BankNotes Blog Spotlighted:<ul><li>The need for regulators to <a href="https://fsforum.com/news/bizarro-world-and-the-gsib-surcharge-when-up-means-down">address</a> the GSIB surcharge to ensure the capital requirements of large banks accurately reflect systemic risk.</li><li>The <a href="https://fsforum.com/news/the-sec-s-current-far-ranging-and-aggressive-rulemaking-agenda-will-raise-regulatory-uncertainty-and-risks-unintended-negative-consequences">unprecedented</a> rulemaking agenda from the SEC that could compound current challenges and result in adverse consequences for the real economy in terms of output, employment, investment, and prices, in part one of a two-blog series with SIFMA.</li><li>Recent <a href="https://fsforum.com/news/the-sec-agenda-and-the-economic-costs-of-heightened-regulatory-uncertainty">research</a> on the impact of uncertainty on the economy, incorporating the impact of regulatory uncertainty, in part two of a two-blog series with SIFMA.</li></ul>&nbsp;<h2>Checking the Balance</h2>Members in the news&nbsp;Bank of America <a href="https://newsroom.bankofamerica.com/content/newsroom/press-releases/2022/04/bank-of-america-invests-nearly--43-million-to-help-drive-economi.html">invested nearly $43 million</a> directly impacting economic and social opportunity in Southeast and Southwest Washington, D.C. &nbsp;The investment, which is aligned with the bank’s <a href="https://about.bankofamerica.com/en/making-an-impact/racial-equality-economic-opportunity?cm_mmc=EBZ-EnterpriseBrand-_-vanity-_-EB01VN00LE_equality-_-N/A">commitment</a>&nbsp;to advance racial equality and economic opportunity in local communities, is aimed at improving the area’s long-term economic growth and stability. Through affordable housing projects and partnerships with local nonprofits – including Building Bridges Across the River (BBAR), the Washington Area Community Investment Fund (Wacif), and Bread for the City – the funding and grant package addresses housing, workforce development, healthcare and small business efforts across the District.BNY Mellon has been <a href="https://www.bnymellon.com/us/en/about-us/newsroom/company-news/fortune-names-bny-mellon-one-of-the-worlds-most-admired-companies-for-25th-year.html">named</a> one of the most admired companies in the world, according to a study published in FORTUNE magazine. This is the 25th time BNY Mellon has been included on the list since it originated in 1997. The annual “World’s Most Admired Companies” report surveys top executives and directors, along with financial analysts, to identify the companies that have the strongest reputations within their industries and across industries.Citi was <a href="https://www.housingfinance.com/finance/affordable-housing-lenders-find-new-opportunities_o">recognized</a> as the number one affordable housing lender in the United States for 2021, according to Affordable Housing Finance magazine’s annual ranking. This marks the 12th consecutive year that Citi has earned this distinction.Goldman Sachs was <a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__equileap.com_wp-2Dcontent_uploads_2022_03_Equileap-5FGlobal-5FReport-5F2022.pdf&amp;d=DwMF-g&amp;c=7563p3e2zaQw0AB1wrFVgyagb2IE5rTZOYPxLxfZlX4&amp;r=b8iCANJjLlDzgmI1DhIxZS-McRP4R7RcWpchMfWzEiw&amp;m=yNYD6_i6UC_ssXZmAcOaLfhwTNcmIjnpZQ8atc1oofA&amp;s=ip4yEW8ZkJT6qOyH7YgDpViGrRbJtwRh72uyup60--0&amp;e=">recognized</a> as a top company in Equileap’s 2022 Gender Equality Global Report for its commitment to equality and investment in opportunities for women around the world.JPMorgan Chase recently announced&nbsp;<a href="https://www.jpmorganchase.com/news-stories/jpmc-commits-30m-to-help-close-wealth-gaps-for-black-and-latina-women">six winners</a>&nbsp;to receive $5 million each as part of an annual competition to source innovative and sustainable ideas to advance equity in communities across the U.S.&nbsp; This year, the firm sourced proposals for projects designed for and by Black and Latina women to address racial and gender wealth gaps.&nbsp; JPMorgan Chase awarded six winning cities—Washington, DC., Baltimore, Minneapolis, New Orleans, Miami, and Los Angeles— $5 million each over a period of three years, for a total of $30 million in philanthropic commitments. The winning proposals aim to address challenges faced by Black and Latina women across several sectors, including early childhood education, entrepreneurship, and real estate development.The Morgan Stanley Institute for Inclusion’s <a href="https://www.morganstanley.com/press-releases/equity-in-education-and-career-consortium">Equity in Education and Career Consortium</a> launched a multi-year program focused on eliminating barriers to degree completion and career readiness for Community College students from underserved communities nationwide. College Possible and CUNY ASAP will receive $5.5MM in grants to scale their programs building on a <a href="https://www.morganstanley.com/press-releases/equity-in-education-and-career-consortium">previously announced commitment</a> of $20MM to address the education and career achievement gap for young adults from low- to moderate-income backgrounds.Reflecting State Street’s commitment to increasing diverse representation in the financial services industry, the firm <a href="https://newsroom.statestreet.com/press-releases/press-release-details/2022/State-Street-Engages-Women-Owned-Broker-Dealers-to-Underwrite-500-Million-of-Senior-Unsecured-Debt/default.aspx">announced</a> that it has issued $500 million of senior unsecured debt. The offering was structured in keeping with State Street’s ongoing inclusion, diversity and equity efforts, with R. Seelaus &amp; Co., LLC and Siebert Williams Shank &amp; Co., LLC acting as bookrunners, and MFR Securities, Inc., Stern Brothers &amp; Co., and Tigress Financial Partners, LLC acting as co-managers. These five broker-dealers are women-owned.Wells Fargo <a href="https://newsroom.wf.com/English/news-releases/news-release-details/2022/Wells-Fargo-Expands-Resources-for-Women-Owned-Small-Businesses/default.aspx">announced</a> support to help increase the growth of women-owned small businesses, including a $1.5 million grant to&nbsp;<a href="https://urldefense.com/v3/__https:/cts.businesswire.com/ct/CT?id=smartlink&amp;url=https*3A*2F*2Fwww.howwomenlead.com*2F&amp;esheet=52592014&amp;newsitemid=20220309005230&amp;lan=en-US&amp;anchor=How*Women*Lead&amp;index=1&amp;md5=acd2871e1ab39f5818b67de9c5636489__;JSUlJSsr!!F9svGWnIaVPGSwU!-JimdYUvezmCVd-gmG0W5copfXqE6p0QdzOKC--p5Te_iAcS9_rF_Xgb4HW8riDg8os3XA$">How Women Lead</a>&nbsp;to disrupt the unequal venture capital system for women founders. The grant will help inspire 10,000 women to invest with venture capital for the first time, ultimately building a $1 billion fund. In addition, the company is sharing new data and an interactive toolkit on closing the economic gaps facing women entrepreneurs.

The Forum File, 2022 Edition #2

<h3>Introduction</h3>Each year, the Federal Reserve conducts a stress test of the nation’s largest banks.&nbsp; The results directly determine their capital requirement.&nbsp; When people hear about the stress tests, they naturally think that the stress test results are driven by measurable, concrete factors that contribute to a bank’s risk profile such as exposures to commercial real estate loans or complex financial instruments.&nbsp; While those things matter, the Federal Reserve’s projections for revenues and expenses also play a critical role.&nbsp; In 2024, projected non-interest expense was the single largest driver of the stress test results for Forum members.&nbsp; Projected expenses are, quite unfortunately, one of the least transparent aspects of the annual stress tests.&nbsp; Moreover, expenses are not themselves drivers of risk in the banking sector that should have a first-order impact on capital requirements.&nbsp; This year’s stress test sheds light on the exceedingly opaque nature of the stress tests that contribute to unnecessary and costly volatility in bank capital requirements.&nbsp; The stress tests would be significantly improved with increased transparency as well as a re-evaluation of the process for projecting revenues and expenses in the stress tests.<h3>Expense Projections and the 2024 Stress Tests&nbsp;</h3>Each year, the Federal Reserve’s stress test projects loan and securities losses over a three-year horizon for the nation’s largest banks.&nbsp; These projected losses are driven by the specific exposures that each bank has on its balance sheet as well as the severely adverse stress scenario that is hypothesized by the Federal Reserve each year.&nbsp; A bank with large exposures to a sector that the Federal Reserve decides will be subject to a large shock in the stress scenario will experience elevated projected losses.&nbsp; These losses should be the key driver of risk that would then inform the results of the stress test.Because the stress scenario is assumed to unfold over a very long, three-year, horizon the stress testing procedure must also project and account for revenues and expenses.&nbsp; Over a three-year period, one can’t simply assume that revenues and expenses are zero as net income before loan loss provisions (revenue less expense) adds to the capital base that is eroded by any projected loan and security losses.Below, we show the change between 2023 and 2024 in the most significant components of the stress tests: income, non-interest expense, loan losses, and trading and counterparty losses.<figure class="image"><img src="https://fsforum.com/a/media/7.9.24-blog-chart.png"></figure>&nbsp;Source: Federal Reserve Board Stress Testing Disclosures: 2023-2024As can be seen in Figure 1, the single largest change in the key stress testing components was a nearly $47 billion increase in non-interest expenses.&nbsp; In addition, income rose by roughly $24 billion while loan losses (provisions) increased by roughly $30 billion, and trading and counterparty losses were effectively unchanged.The data in Figure 1 speak to the significance of expense modeling and projections to the stress tests.&nbsp; Since Friday, June 28, 2024, Forum members have publicly announced that the stress tests will increase their stress capital buffer, or SCB, by roughly 0.4 percent on average.&nbsp; Much of this increase can be traced directly to the increase in projected non-interest expense displayed in Figure 1. &nbsp;&nbsp;Given that a bank’s SCB is an integral component in its overall capital requirement, and that capital requirements at banks have a measurable impact on the broad economy, at this point, we should pause and think a little bit about exactly what is going on here.&nbsp; First, what exactly are “non-interest expenses” and second, do they really have any information content about a bank’s risk level that should inform its capital requirement?<h3>Non-Interest Expenses Explained</h3>As the name suggests “non-interest expenses” are those bank expenses besides interest payments made by banks on their deposits and other debt instruments.&nbsp; As an aside, interest expense is typically not broken out separately, but is considered as part of “net interest income” (interest income less interest expenses).&nbsp; Table 1 below shows the main components of non-interest expense as detailed in Federal Reserve <a href="https://www.newyorkfed.org/medialibrary/media/research/epr/2014/1412kovn.pdf">research</a> and also provides a few illustrative examples of non-interest expenses.<figure class="image"><img src="https://fsforum.com/a/media/blog-7.9.24.png"></figure>Source: <a href="https://www.newyorkfed.org/medialibrary/media/research/epr/2014/1412kovn.pdf">Federal Reserve Bank of New York</a>As shown in the table above, the most significant category of non-interest expenses is wages and compensation, comprising roughly 50 percent of all non-interest expenses.&nbsp; Following wages, expenses for real estate and other fixed assets, goodwill, and depreciation costs account for the majority of non-interest expenses.&nbsp; At the micro-level, expenses for things like IT, consulting, and legal fees are also contained in non-interest expense.In light of the constituents of non-interest expense, is there any reason to expect these expenses would be a driver of risk in the banking sector?&nbsp; Any reasonable analysis would clearly indicate that this is not the case.&nbsp; Accordingly, it is hard to understand how the single largest driver of the 2024 stress test results could stem from an increase in costs associated with things like consulting fees, real estate expenses, and the like.Finally, one last conceptual issue with projected non-interest expenses.&nbsp; Apparently, the stress tests assume that non-interest expenses will rise in a stress event.&nbsp; But roughly half of non-interest expense is accounted for by wages.&nbsp; In a period of financial stress, wages are likely to fall and not rise as financial activity grinds to a halt.&nbsp; Even if wages don’t rise, the idea that they would increase markedly is counter to any standard economic theory of supply and demand in the labor market.&nbsp;&nbsp;&nbsp;<h3>Stress Testing Opacity and Non-Interest Expense</h3>As discussed, non-interest expenses are projected in the stress tests due to the very long, three-year, horizon of the hypothesized stress scenario.&nbsp; How exactly then are these expenses projected?&nbsp; The short answer is that nobody, except Federal Reserve staff, knows the answer to that question.&nbsp; Moreover, if loan or security losses are projected to increase, one can at least observe whether a bank has a rising exposure to those assets or whether the scenario posits a particularly challenging economic environment for such assets – as in sharply declining commercial real estate prices.&nbsp; In the case of non-interest expenses, what specific economic indicia would portend sharply rising wages, consulting fees, real estate costs, or IT costs?&nbsp; These sorts of costs are largely unrelated to financial and economic risk, suggesting that the related projections in the stress tests are largely discretionary without being tied to any clear indicators of risk or distress.&nbsp; The resulting projections then naturally result in overly volatile stress test results unrelated to financial risk.&nbsp;On June 26, 2024, the House Financial Services Subcommittee on Financial Institutions and Monetary Policy held <a href="https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=409298">a hearing</a> entitled “Stress Testing: What’s in the Black Box.”&nbsp; In that hearing, the <a href="https://fsforum.com/news/stress-test-process-needs-to-be-more-transparent">Forum</a> and several other experts testified on the concerning nature of an opaque regulatory process that levies capital requirements using non-public, quantitative models that cannot be reviewed, examined, or audited by the public.&nbsp; This year’s round of stress tests adds another clear data point underscoring the urgent need for greater transparency in the stress tests.&nbsp; When stress test results and resulting capital requirements are driven by opaque projections for expenses largely unrelated to financial risk, the entire basis for stress testing is called into question.<h3>Conclusion</h3>The increased severity of this year’s stress test results are being driven by opaque projections for certain expenses that are not generally tied to any reasonable notion of financial risk.&nbsp; As a result, we are witnessing an injection of regulatory volatility via undisclosed and opaque models into regulatory capital requirements that do not serve the public interest.&nbsp; The stress tests should be reformed to be more transparent to the public so that policymakers and the broader public can evaluate whether the stress tests reasonably and realistically assess the riskiness and capital adequacy of our nation’s largest banks.&nbsp;

The Blackest of Black Boxes: The Role of Projected Expenses in the 2024 Stress Test

In the past 30 years, large companies such as Walmart, Target, and Home Depot have transformed the U.S. economy.&nbsp; At the national level, large companies represent a growing share of all commerce, which has contributed to a view that large firms dominate the economic landscape at the expense of smaller companies and consumers.&nbsp; New <a href="https://www.princeton.edu/~erossi/DTNLC.pdf">research</a> by economists from Princeton University and the Federal Reserve, however, shows that the increasing presence of large, national companies at the local level has actually reduced local market concentration and enhanced consumer choice.&nbsp; In this post, we demonstrate that this finding extends to the presence of Financial Services Forum member bank branches.&nbsp; Specifically, since the 1990s, local markets where Forum members have opened branches have become less concentrated and offered more banking choices to consumers.&nbsp; What’s more, the total number of bank branches available to consumers in those local markets increases.&nbsp; Accordingly, as is the case in a range of other industries, as Forum members have entered local markets, they have coexisted alongside existing banks while enhancing competition and broadening consumer choices.&nbsp;<blockquote>Accordingly, as is the case in a range of other industries, as Forum members have entered local markets, they have coexisted alongside existing banks while enhancing competition and broadening consumer choices.</blockquote>The research paper referenced above uses firm-level data covering the U.S. from 1990 through 2014 to document that across a wide range of industries, local market concentration has declined.&nbsp; Market concentration is defined with respect to the Herfindahl-Hirschman or “HHI” concentration index applied at the zip-code, metropolitan, and county levels.&nbsp; The HHI measure is defined as the sum of squared market shares among all companies in a local market (zip code, or city, or county).&nbsp; If one firm has a 100 percent market share, then the HHI is 10,000 and if a large number of companies all maintain an equal market share then the HHI will tend to zero as the number of firms increases.&nbsp; The HHI measure is a well-accepted measure of market concentration that is used by the Department of Justice and other federal regulators to gauge market competition.&nbsp; Markets with a lower HHI are less concentrated, more competitive and more favorable to consumers.&nbsp;<h3>Forum Member Entry into Local Markets and Market Concentration&nbsp;</h3>The main finding of the research paper is that local market concentration has declined across a range of industries since the 1990s.&nbsp; Specifically, Figure 1 (reproduced from the paper) shows that average market concentration in local markets, where a local market is defined by a zip code, has declined across a range of industries.&nbsp; Importantly, the researchers show that the “FIRE,” or finance, insurance and real estate sector, has exhibited one of the most significant downward trends in local market concentration since the 1990s.&nbsp; Also, the authors convincingly show that across a range of industries, the decline in concentration is driven by the increasing presence of large, national companies.&nbsp; Specifically, they show that as large, national firms enter a market, they increase the total number of companies in the local market and thereby reduce concentration and increase competition.&nbsp;<div class="raw-html-embed"><iframe class="highcharts-iframe" style="border: 0; width: 100%; height: 500px;" src="https://cloud.highcharts.com/embed/_xdbSZFLy/"></iframe></div>The focus of this research on local market concentration is important.&nbsp; As the authors rightly point out, “all markets are local.”&nbsp; In assessing market concentration, it is important to focus on an area that can credibly be viewed as a “market.”&nbsp; Since most people shop and compare products in a limited geographic area, considering a “national market” is of limited relevance to most consumers.&nbsp; Also, while e-commerce and internet shopping are clearly more important today than they were 25 years ago, much commerce is still conducted in brick-and-mortar establishments within a limited geographical area.&nbsp; In the case of banking, much has been written about the continued importance of local bank branches.&nbsp; In particular, Federal Reserve researchers recently wrote a <a href="https://www.federalreserve.gov/econres/notes/feds-notes/why-are-there-still-bank-branches-20180820.htm">research note</a> outlining the continued importance of local bank branches.&nbsp;In Table 1, we extend the results of the paper to local market concentration in bank branches by computing local market concentration in all local markets as well as those markets where a Financial Services Forum member opened a branch.&nbsp; We use FDIC Summary of Deposits data to compute market concentration in local market deposit shares.&nbsp; In our analysis, we use both 1994 and 2010 as beginning dates and 2018 as the end date of our analysis.&nbsp; We consider both 1994 and 2010 as the beginning dates for our analysis because the composition of the banking sector changed so much over the 1994-2010 period.&nbsp; We consider local markets at the zip code, city, and county level to ensure that we consider a wide range of local markets.&nbsp;<figure class="image"><img src="https://fsforum.com/a/table_1_3d3d2d7a14/table_1_3d3d2d7a14.jpg" alt=""><figcaption>Source: FDIC Summary of Deposit Data, available at <a href="https://www.fdic.gov/open/datatools.html">https://www.fdic.gov/open/datatools.html</a>&nbsp;</figcaption></figure>&nbsp;As shown in Table 1, markets where a Forum member opened a branch typically exhibit a sharper average decline or a smaller average increase in concentration than observed across all local banking markets.&nbsp; While it is the case that market concentration increased slightly more at the county level between 1994-2018 (one case), in every other market and time period (5 cases), markets in which a Forum member opened a branch exhibited a sharper decline or a smaller increase in market concentration than that observed across all local markets.&nbsp; As an example, at the zip code level, between 1994 and 2018, local markets in which a Forum member opened a branch saw a roughly two percent decline in concentration while all local markets exhibited roughly a five percent increase in concentration over the same period.&nbsp; When local markets are measured at the city level and the analysis begins in 2010, markets experiencing entry by a Forum member exhibited roughly a 12 percent average decline in concentration while all local markets exhibited roughly a 10 percent increase in concentration over the same period.&nbsp; Overall, the results in Table 1 comport with the broader findings of the research paper.&nbsp; Entry by Forum members into local markets has reduced market concentration and enhanced consumer choice for banking services.&nbsp;Table 2 provides more evidence on how the entry of large banks in local markets improves competition and consumer choice.&nbsp; Specifically, Table 2 reports the average percentage increase in the number of branches in markets where a Forum member opened a branch versus all local markets.&nbsp; Consistent with the results in Table 1, markets where a Forum member opened a branch typically experienced a larger increase in the total number of branches than was observed in all local markets.&nbsp; As was the case in Table 1, the county-level results over the 1994-2018 period show that the increase in branches is roughly the same across all markets and markets where a Forum member opened a branch.&nbsp; In all other cases, however, markets where a Forum member opened a branch exhibited stronger growth in the number of bank branches.&nbsp; As an example, at the zip code-level and over the 1994-2018 period, markets in which a Forum member opened a branch experienced roughly a 78 percent increase in the number of branches as compared with an overall increase of roughly 17 percent across all local markets.&nbsp; At the city level over the 2010-2018 period, markets in which a Forum member opened a branch exhibited roughly a 60 percent increase in branches while all markets experienced roughly a 15 percent decrease over this period. &nbsp;This finding is also consistent with the broader findings of the research paper and is important for dispelling a common misconception that large companies (and large banks) enter a market and then drive out local incumbents.&nbsp; These data reject that view.&nbsp; While it may be the case that entry of large banks in a local market causes some firms to exit, on the whole, local markets see a net increase in the total number of branches as a result of the entry of large firms.&nbsp; This increase benefits consumers through increased choice, competition and reduced market concentration (as measured by HHI).&nbsp;<figure class="image"><img src="https://fsforum.com/a/table_2_4c0575a76e/table_2_4c0575a76e.jpg" alt=""><figcaption>Source: FDIC Summary of Deposit Data, available at <a href="https://www.fdic.gov/open/datatools.html">https://www.fdic.gov/open/datatools.html</a></figcaption></figure><h3>Conclusion&nbsp;</h3>A recent research paper finds that, across a wide range of industries, local market concentration has declined, which has improved consumer choice and competition.&nbsp; Moreover, the research finds that this trend is driven by the increasing presence of large, national companies in local markets.&nbsp; We extend this finding to the case of bank branches and show that the entry of Forum member bank branches into local markets has reduced market concentration and improved competition and consumer choice.&nbsp; These results are important for understanding how large banks contribute to the competitive landscape as well as the overall U.S. economy.

Large Banks Improve Competition and Consumer Choice in Local Markets

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Banks that provide custody services play a critical, foundational role in the functioning of the global securities markets, ensuring broad operational efficiencies and high levels of investor protection. Custody bank services are designed to protect investor assets from misappropriation or loss while allowing for diverse and operationally efficient investing. The Forum advocates for policies that support the important role of custody banking in our economy.  

Custody Banking

Joint Trades Letter to House re Support for CRA of SAB 121

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Strong, Resilient and Supporting the ResponseAs our nation continues to endure the ongoing pandemic – physically apart but united in resolve – America’s largest banks <a href="https://www.fsforum.com/coronavirus-response/">remain focused</a> on supporting the wellbeing of the individuals, families, businesses, employees and communities that we serve.Our members entered this crisis stronger and more resilient than ever, enhancing their ability to respond to the crisis and support impacted Americans. During the first quarter of 2020,&nbsp;<a href="https://www.fsforum.com/types/press/unprecedented-increase-in-large-bank-lending-to-help-businesses-through-the-recovery/">Forum members</a> increased their lending roughly $272 billion to businesses of all sizes to help them remain viable. And, Forum firms’ deposit base <a href="https://www.fsforum.com/types/press/blog/large-bank-resilience-supporting-depositors-during-the-covid-pandemic/">increased by</a> over 13 percent in Q1, as they continue to offer a critical financial service for businesses and households throughout the country.In its recent regular&nbsp;Supervision and Regulation&nbsp;<a href="https://www.federalreserve.gov/publications/files/202005-supervision-and-regulation-report.pdf">report</a>, the Federal Reserve noted the actions taken by banking regulators and the industry in the past decade put the sector in a strong position to facilitate continued lending.“Banks are better capitalized and hold more liquidity,” the Federal Reserve said. “The industry is characterized by better capital and liquidity planning and improved risk-management capabilities at banks of all sizes.”<figure class="image"><img src="https://fsforum.com/a/picture1_1_46243a8774/picture1_1_46243a8774.png" alt="https://fsforum.com/a/picture2_f785403754/picture2_f785403754.png"></figure>The central bank also noted that market-based indicators, such as the market leverage ratio and credit default swap spreads, “may reflect the belief by investors that banks are more resilient and better positioned today than during the 2008 financial crisis.”There’s no doubt that the path ahead will be challenging. But banks are positioned to keep providing robust support to the economy. – Kevin Fromer, Forum President &amp; CEO (<a href="https://www.fsforum.com/types/press/blog/federal-reserve-points-to-strength-and-resiliency-of-large-banks/">More on the BankNotes Blog</a>)Forum Spotlight:&nbsp;Bank of America&nbsp;Commits $350 Million to Support Nonprofits and Communities, $250 Million for Community LendingIn March,&nbsp;Bank of America&nbsp;announced a $100 million philanthropic commitment to help tackle pressing health and humanitarian issues facing populations most vulnerable to the coronavirus crisis. The commitment is in addition to the bank’s $250 million annual philanthropic commitment. The majority of the funds are being distributed at the local level.As of May 6, the bank has delivered over $90 million to more than 1,300 nonprofits around the world.&nbsp;Additionally,&nbsp;Bank of America&nbsp;is providing&nbsp;<a href="https://newsroom.bankofamerica.com/press-releases/consumer-banking/bank-america-commits-250-million-capital-and-10-million">$250 million</a>&nbsp;in capital to Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs), offering financial assistance to&nbsp;low- and moderate-income,&nbsp;and minority communities.As part of its commitment, Howard University and&nbsp;Bank of America&nbsp;announced the opening of a free coronavirus testing clinic in Washington, D.C.’s Ward 7. The clinic, which opened on May 6, was made possible by a $1 million grant from the bank, and was lauded by D.C. Mayor Muriel Bowser who said: “Not only is this site providing free testing, but it is also equipping residents with the information they need to protect themselves and their families from COVID-19. Together, this is how we save lives and ensure all residents are getting the care they need during these unprecedented and uncertain times.” (<a href="https://newsroom.bankofamerica.com/press-releases/consumer-banking/bank-america-commits-250-million-capital-and-10-million">More from Bank of America</a>)Forum Analysis: Banks of All Sizes are Supporting Small BusinessesThe Paycheck Protection Program (PPP) has been one of the government’s key policies aimed at supporting small businesses and workers impacted by COVID-19. Banks have served as conduits for this assistance, devoting significant staff and technology to the federal government’s lending program.&nbsp; With any program of this magnitude and importance, there is interest in how the funding is disbursed and to whom. Small businesses bank with financial institutions small and large, and accordingly, supporting small businesses requires leveraging the entire banking system.Our findings show that banks of all sizes have played an important role in channeling relief to households and businesses through the PPP program. Looking at the total amount of PPP lending in each state and the number of branches for community, medium and large banks, we see a positive relationship indicating that states with more branches, of banks of all sizes, receive more PPP loans.<figure class="image"><img src="https://fsforum.com/a/picture2_2_5ca22909d6/picture2_2_5ca22909d6.png" alt=""></figure>The number of bank branches is a good proxy for the relationship between banks and small businesses, as well as the availability of local bank staff to answer PPP-related questions and process applications.&nbsp; Our research shows that as a whole, the banking system is doing its part to support households and businesses through these difficult times and will be ready to further support the economy in the recovery. – Sean Campbell, Forum Chief Economist, Head of Policy Research (<a href="https://www.fsforum.com/types/press/blog/ppp-lending-and-the-banking-sector-banks-of-all-sizes-support-small-businesses/">More on the BankNotes Blog</a>)Forum Spotlight:&nbsp;JPMorgan Chase Customers Benefiting from PPPAs of May 5, Forum institutions made or approved more than 700,000 PPP loans to small businesses, totaling nearly $73 billion. But what do these big numbers mean to a small business struggling during this pandemic?The vast majority of PPP loans from Forum member JPMorgan Chase have gone to some of America’s smaller businesses, including Community Wellness Ventures, a mental health services company that serves children and families in Washington, D.C. Their PPP loan is helping Dr. Charlayne Hayling-Williams and her husband, Dr. Rod Williams, continue to pay their counselors, social workers, psychologists and housing specialists. &nbsp;“I own two restaurants in New York City which have been completely shuttered,” said Paula Vargas, proprietor of family-owned&nbsp;El Coyote Restaurant. “I did not apply initially because my father and brother were in the hospital with the Coronavirus, battling for their lives. Chase not only helped me every step of the way with the application process, but did so at any time of the day or night. This loan will be able to put us back on the market and provide relief for our 60 employees and their families.” (<a href="https://www.fsforum.com/coronavirus-response/#supporting-small-businesses">More on our Coronavirus Response page</a>)

The Forum’s COVID Update: Issue #2

CONTACT: Barbara Hagenbaugh (202) 457-8783 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <a href="mailto:bhagenbaugh@fsforum.com">bhagenbaugh@fsforum.com</a>&nbsp;WASHINGTON, D.C. - Financial Services Forum President and CEO Kevin Fromer issued the following statement today in response to the Federal Reserve Board’s 2020 Comprehensive Capital Analysis and Review (CCAR) results:<blockquote>The stress test results underscore the strength, safety and resiliency of the nation’s largest banks. Financial Services Forum members again have proven that they can absorb losses and continue to support U.S. businesses and consumers during a time of severe financial stress."Indeed, we are seeing on-the-ground evidence of the strength and resiliency of the nation’s largest banks as our economy suffers an enormous strain from the COVID-19 pandemic. Our member firms have assisted customers by providing temporary relief for mortgage, car and credit card payments, refunding fees and providing other forms of relief. Forum members have supported businesses of all sizes by increasing our lending by 15 percent in the first quarter, an unprecedented rate, helped companies raise capital in public markets and provided more than 773,000 PPP loans to small businesses so that they can pay their employees and maintain operations. And total deposits at Forum institutions rose more than 13 percent in the first quarter, as our firms have provided an important service to individuals and businesses in these uncertain times."As the Federal Reserve showed in its stress tests, the nation’s largest banks are able to provide this support to the economy while remaining strong and safe. The eight members of the Financial Services Forum swiftly acted on March 15 to temporarily suspend buybacks. Forum members appreciate the Federal Reserve’s work to promote financial stability during such extraordinary economic uncertainty and understand its decision regarding capital returns through the third quarter."As the Federal Reserve conducts further analyses on the individual capital position of each firm, it will be important to provide transparency to institutions and the public. We look forward to continuing to fulfill our commitment to supporting businesses and consumers in the weeks, months and years ahead."</blockquote>###The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States.&nbsp; Forum member institutions are a leading source of lending and investment in the United States and serve&nbsp;millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.Follow us on Twitter <a href="https://twitter.com/fsforum">@fsforum</a> and on <a href="https://www.linkedin.com/company/financial-services-forum/">LinkedIn</a>.

Financial Services Forum Statement on 2020 Stress Tests

CONTACT: Julia Lawless&nbsp;(202) 457-8766&nbsp;&nbsp;Washington, D.C. – Today, Financial Services Forum President and CEO Kevin Fromer said a new report by the group Better Markets grossly mischaracterized the health and character of the nation’s largest banks.&nbsp;“In an attempt to politicize a serious hearing and discussion about the United States’ robust financial system, this report offers nothing more than a gross mischaracterization of the response to the global financial crisis. It reflects a fundamental misunderstanding of the complex actions taken by the government to mitigate financial panic and damage to the economy during that time. Further, it impugns the integrity of these institutions and their leaders and tries to undermine the seriousness with which they take their role in serving their customers and the economy as a whole.”&nbsp;<h3>Background:&nbsp;</h3>An analysis by the Financial Services Forum found the report incorrectly characterized many federal programs as being created to deal with the fallout from the financial crisis as a “bank bailout.”&nbsp;While there were some programs designed to support banks, such as the Temporary Liquidity Guaranteed Program (TLGP), a large number were designed with the explicit intent of supporting asset markets and the economy more broadly.&nbsp;Even though many of these programs were put into effect through the U.S. banking system, banks are best understood as a means of channeling official sector efforts to underlying asset markets and the economy as a whole.&nbsp;The report targeted several of the members of the Financial Services Forum, which represents the eight, largest most diversified financial institutions headquartered in the United States.&nbsp; Today, these institutions are strong, resilient and supporting the economy. Here’s how:&nbsp;<ul><li>We are large employers. &nbsp;Our economy depends on the more than one million employees of the Forum firms who help customers, businesses, investors, and communities.</li><li>We support consumers. Our institutions provide nearly <a href="https://fsforum.com/a/forum_consumer_lending_8b938d7e46/forum_consumer_lending_8b938d7e46.jpg">half of all consumer loans</a>. They help families and consumers address a variety of household needs, whether it’s buying a car, closing on a new home or simply saving for the future.</li><li>We support other banks. Forum members meet <a href="https://fsforum.com/a/lending_other_financial_institutions_5d52df1a94/lending_other_financial_institutions_5d52df1a94.jpg">three-quarters</a> of the funding needs of other financial institutions, such as local community banks.</li><li>We support companies. We underwrite nearly <a href="https://fsforum.com/a/forum_underwriting_activity_6136880e30/forum_underwriting_activity_6136880e30.jpg">three-quarters of all domestic</a> debt and equity transactions, including IPOs.&nbsp; Start-ups like Lyft and Pinterest go through banks like ours to go public.</li><li>We support small businesses. We hold one-quarter of all <a href="https://www.fsforum.com/types/press/blog/blog-big-banks-and-small-businesses-supporting-entrepreneurs-across-america/">small business loans</a>, which help entrepreneurs grow their business and hire new workers.</li><li>We support communities. &nbsp;We have about <a href="https://fsforum.com/a/lending_other_financial_institutions_a832c53ec3/lending_other_financial_institutions_a832c53ec3.jpg">$150 billion</a> in municipal security holdings to help state and local governments fund infrastructure projects, such as upgrades to local roads and bridges or updates to community hospitals and schools.</li></ul>To learn more about how large U.S. financial institutions are safe and sound and supporting the economy click <a href="https://www.fsforum.com/types/press/blog/blog-ten-years-later-taking-stock-of-the-progress-made-after-the-financial-crisis-and-looking-to-the-future/">here</a>. &nbsp;###The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States.&nbsp; Forum member institutions are a leading source of lending and investment in the United States and serve&nbsp;millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.&nbsp;Visit our NEW website: <a href="http://www.fsforum.com/">fsforum.com</a>Follow us on Twitter <a href="https://twitter.com/fsforum">@fsforum</a> and <a href="https://www.linkedin.com/company/financial-services-forum/">LinkedIn</a>

Financial Services Forum Blasts New Report on Largest Banks

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Maintaining the international competitiveness of U.S. companies is vital to the success and vibrancy of the U.S. economy. The nation’s largest banks provide crucial support for American companies competing overseas. The Forum supports policies that enable large U.S. banks to continue their vital support of the American economy on the global stage. 

International Competitiveness

Authored by Dr. Anjan Thakor, John E. Simon professor of finance and PhD program director at the Washington University in St. Louis Olin School of Business, the report offers an overview of how a diverse global financial system works to spur economic growth and job creation by providing the necessary products and services businesses and individuals need to succeed. Learn more:&nbsp;http://www.centerforcapitalmarkets.com/wp-content/uploads/2013/08/021881_SourcesofCapital_fin.pdf

Center for Capital Markets Competitiveness Report: International Financial Markets: A Diverse System is the Key to Commerce

To the Editor:&nbsp;Your recent story “<a href="https://www.bloomberg.com/news/articles/2019-02-06/banks-reaping-21-billion-tax-windfall-cut-staff-ease-off-loans">Banks Reaping $21 Billion Tax Windfall Cut Staff, Ease Off Loans</a>” (February 6, 2019), represents an inaccurate portrayal of large banks’ actions in the wake of recent tax reform with assertions that are not supported by the reporter’s own facts.&nbsp; America’s largest banks strongly support their employees, the economy, and communities.&nbsp;The author rightly notes that a number of large banks raised their minimum wage to $15 per hour – more than twice the federal minimum wage – or more and provided bonuses to hundreds of thousands of employees in the wake of the recent tax cuts.&nbsp; Bank of America has awarded more than $1 billion in two special bonuses, to 90 percent and 95 percent of employees in 2017 and 2018, respectively, since the passage of the Tax Cuts and Jobs Act.&nbsp;But, pointing to a few anecdotes of announced layoffs and trying to extrapolate trends in U.S. hiring based on global workforce data, the reporter concludes bank employees have gotten a bad break.&nbsp; In fact, as the author noted, a number of banks are hiring.&nbsp; Some examples: Goldman Sachs has increased its workforce by 9 percent in the past year, creating thousands of quality, well-paying jobs for Americans across the country.&nbsp; JPMorgan Chase is hiring 4,000 new employees in part to staff 400 new branches across the country, many in low- and moderate-income areas.&nbsp;The author also questioned if trends in bank lending suggested the tax cuts weren’t being redeployed in the economy.&nbsp; But the reporter’s own data showed a recent increase in commercial and industrial lending, the only sector on which the author focused.&nbsp; For the record, total lending by the eight largest, most diversified financial institutions was up 2.1 percent in the third quarter of 2018 from a year earlier, fueled by large increases in loans to small businesses, commercial and industrial companies, and other financial institutions, including community banks.&nbsp;Finally, the reporter said the biggest winners of the tax cuts were shareholders, given an increase in dividends and buybacks last year.&nbsp; What he fails to note is who those shareholders are.&nbsp; More than half of all Americans own stocks, according to the Federal Reserve, and money returned to them recirculates throughout the economy.&nbsp; Additionally, buybacks complement – not replace – investments businesses make in workers, capital, and R&amp;D and they mean that the U.S. economy is healthy and companies are growing.&nbsp;<blockquote>America’s largest banks are critical to our large economy.&nbsp; We support our employees, lend to businesses and households, and assist communities across our country.&nbsp; Those are the facts that should not be ignored.</blockquote>Kevin Fromer President and CEO, Financial Services Forum, which represents the eight largest, most diversified U.S. banking institutions &nbsp;

Letter to the Editor: America’s largest banks strongly support their employees, the economy, and communities

Joint Trades Letter: Support for H.R. 2513, the "Corporate Transparency Act of 2019”

Banks, Credit Unions Urge Passage of Anti-Money Laundering Legislation

Essence

Goldman Sachs Invests $10 Billion In New 'One Million Black Women' Initiative

Recently, the board of the FDIC approved a number of changes to the <a href="https://www.fdic.gov/news/news/press/2019/pr19073.html">Volcker Rule</a> after releasing a set of proposed changes in May of 2018 and considering public comments.&nbsp; While some have suggested the changes significantly alter the effectiveness of the rule, the changes that were approved by the FDIC broadly represent improvements that reduce the complexity of complying with the rule while maintaining the statutory ban on proprietary trading and supporting the ability of large banks to serve the capital markets needs of savers and investors.&nbsp; In this post, we place the recent changes in context and discuss how they have improved the Volcker Rule. In order to put the recent changes into perspective, it is important to understand a few things about large banks and the Volcker Rule.&nbsp; First, members of the Financial Services Forum do not engage in proprietary trading, which means trading in the short-term for their own benefit without facilitating customer activities or hedging their own risks.&nbsp; Financial Services Forum members do engage in trading activity to serve the needs of their customers, such as pension funds, and support deep and liquid capital markets.&nbsp; As a result, the Volcker Rule is a compliance exercise that should be designed to fulfill the statutory mandate without creating unnecessary burdens and costs. Second, appointees of both Democratic and Republican administrations have long recognized that the original version of the Volcker Rule was excessively complex and burdensome.&nbsp; In particular, former Federal Reserve Governor Daniel K. Tarullo <a href="https://www.federalreserve.gov/newsevents/speech/tarullo20170404a.htm">remarked</a>: “Several years of experience have convinced me that … the Volcker Rule is too complicated.&nbsp; Achieving compliance under the current approach would consume too many supervisory, as well as bank resources.&nbsp; He continued, ”It may be having a deleterious consequence on market making, particularly for some less liquid securities.”&nbsp; It is worth noting that in the past few years, the evidence that the Volcker Rule is having a deleterious impact on market liquidity has been steadily mounting.&nbsp; We called attention to this issue in a May 2018 <a href="https://www.fsforum.com/types/press/blog/has-the-volcker-rule-affected-market-liquidity-and-does-it-matter/">blog</a> post, shortly after the Volcker Rule changes were proposed.&nbsp; In addition, recent <a href="https://www.financialresearch.gov/working-papers/files/OFRwp-19-02_the-effects-of-the-volcker-rule-on-corporate-bond-trading.pdf">research</a> from the government’s Office of Financial Research also suggests that the Volcker Rule has reduced market liquidity.&nbsp;<blockquote>The changes to the Volcker Rule will reduce unnecessary complexity by providing much-needed clarity while also supporting the safety and soundness of large banks as they support deep and liquid capital markets.</blockquote>&nbsp;Two specific changes are worth highlighting: the improvement to the trading account definition and the improvement to the liquidity management provisions of the rule. A key problem with the rule from its inception has been the overly complicated and subjective definition of the “trading account” that determines the scope of the Volcker Rule.&nbsp; The original rule defined the trading account with respect to three overlapping and subjective criteria that required banks to divine the intent of each trade.&nbsp; This approach to defining the scope of the Volcker Rule was inherently problematic, an issue that was widely recognized by regulators.&nbsp; In particular, Governor Tarullo said: “I think the hope was that, as the application of the rule and understanding of the metrics resulting from it evolved, it would become easier to use objective data to infer subjective intent. This hasn't happened, though. I think we just need to recognize this fact and try something else.” The revised trading account definition represents a significant improvement that objectively clarifies and appropriately focuses the scope of the rule.&nbsp; Moreover, to the extent that some assets are not included in the revised definition, that is because those assets support long-term investments, customer trades, or hedging transactions, and are not related to proprietary trading. The original Volcker Rule also contained a provision to ensure that banks could engage in liquidity management.&nbsp; Liquidity management is a key banking activity that supports bank safety and soundness by ensuring that banks have sufficient liquid assets across a range of currencies to meet short-term demands for cash from depositors and other short-term liability holders as they arise.&nbsp; While the intent of the original liquidity management provision was wholly appropriate, it did not allow banks to conduct certain activities that are part and parcel of prudent liquidity management.&nbsp; The revised rule now permits a wider range of liquidity management activities that will support safer and sounder banks.&nbsp; Everyone should applaud regulators for making changes that will improve the safety and stability of the banking sector. As originally implemented, the Volcker Rule was a complex regulation that created unnecessary burdens that did not fully support safe-and-sound banking practices and impeded the ability of large banks to serve their clients and support liquid markets.&nbsp; Time and objective experience proved to regulators that these problems were real and that changes were needed.&nbsp; The changes that were recently made to the Volcker Rule are a step in the right direction that will reduce unnecessary burdens and improve compliance while helping large banks meet the needs of their customers and support liquid capital markets in a safe-and-sound manner.

Regulators Improve the Volcker Rule

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The nation’s largest banks are subject to the most stringent liquidity standards among U.S. banks. These standards ensure that the largest U.S. banks have sufficient liquid resources, such as cash, to meet liquidity needs such as when customers withdraw money from their accounts. Since 2009, the U.S. GSIBs have tripled their liquid assets, allowing them to remain strong and continue to lend and support the economy in the face of headwinds.

Liquidity 

The past 10 years have seen a growing emphasis on the ability of large banks to maintain sufficient amounts of liquid resources to meet ongoing financial demands from depositors, creditors, and others.&nbsp; The recent pandemic has underscored the importance of liquidity at large banks as their borrowers have needed significant amounts of cash, on relatively short notice, to help them meet their immediate financial obligations.&nbsp; In this post, we briefly review the facts on the liquidity position of Forum members and show that over the past year, Forum members have further strengthened their liquidity position by over $160 billion and maintain liquid resources well in excess of regulatory requirements.The U.S. banking regulators’ liquidity coverage ratio (LCR) requires large banks to hold certain amounts of high-quality liquid assets, or “HQLA,” to meet short-term liquidity needs, such as the need to provide cash to a corporate borrower as the result of an unscheduled draw on a pre-existing credit line.&nbsp; HQLA is comprised of cash and other “near cash” alternatives, such as deposits at the Federal Reserve and other high-quality government securities that can be monetized quickly at low cost.&nbsp; As we discussed in a previous <a href="https://www.fsforum.com/types/press/unprecedented-increase-in-large-bank-lending-to-help-businesses-through-the-recovery/">post</a>, in the early stages of the pandemic, Forum members provided an unprecedented amount of corporate lending in response to an unprecedented demand for credit.&nbsp; Much of this lending was provided in the form of draws on existing credit lines, necessitating that Forum members provide their customers with much-needed liquidity to meet payroll and other financial obligations.&nbsp;<figure class="image"><img src="https://fsforum.com/a/figure_1_hqla_9329e67e9d/figure_1_hqla_9329e67e9d.png" alt=""><figcaption>Source: Forum Members’ Q1 2020 Liquidity Coverage Ratio Disclosures</figcaption></figure>Recently, all Forum members have disclosed their HQLA levels as of the end of the first quarter of 2020.&nbsp; Together, as shown in Figure 1, Forum members grew their overall liquidity position by over $160 billion since the first quarter of 2019 from roughly $2.2 trillion to $2.4 trillion.&nbsp; In addition, this substantial increase in liquidity came at a time when liquidity demands on the banking sector were high as a result of the pandemic.&nbsp; The high level of liquidity at Forum members is a tangible sign of their overall strength and resiliency as well as their ability to serve their clients and the economy during a period of need.&nbsp; In addition to the high dollar amount of HQLA resources, Forum members also maintain significant amounts of liquid resources relative to their potential liquidity needs.&nbsp; As part of the LCR regulation, large banks are required to calculate the amount of liquid resources they might need over a 30-day period of stress.&nbsp; The bank’s HQLA holdings must be at least as large as the computed stress liquidity need.&nbsp; Together, and as shown in Figure 1, Forum members maintain HQLA that is 117% of the stress liquidity need.&nbsp; Accordingly, Forum members maintain robust levels of liquidity to meet the needs of businesses and households.The recent pandemic has placed a special emphasis on the importance of liquidity for financial institutions as they provide liquidity to meet the quickly evolving needs of their clients.&nbsp; Forum members have met those needs and continue to build liquidity strength by increasing the amount of their HQLA holdings.&nbsp; The liquidity position of Forum members is an important sign of their resilience and their ability to support businesses, households and the economy.

Large Bank Liquidity Continues to Strengthen

Empower

The Empower Role Model List

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The Forum supports a review of the GSIB surcharge, a capital requirement that was agreed to internationally, but that U.S. regulators have implemented in a manner that places higher requirements on U.S. banks than that required of foreign competitors. 

Federal regulators have failed to review and adjust the calculation of the surcharge to reflect the inflationary effects of overall economic growth, as they indicated it would when the GSIB surcharge rule was enacted in 2015. Since that time, the surcharges for U.S. GSIBs have increased in large part due to economic growth and inflation, which in no way suggests heightened systemic risk.


GSIB Surcharge 

<h3>Introduction</h3>Since the 2008 Financial Crisis, the implementation of the Global Systemically Important Banks (GSIB) framework has become a crucial aspect of financial regulation.&nbsp; GSIB banks, which comprise all Forum members as well as a significant number of large, foreign banks, are subject to an additional capital requirement known as the “GSIB Surcharge.” &nbsp;The GSIB surcharge depends on a large number of technical, data-dependent indicators that form the basis of a “GSIB Score” that then is translated into a GSIB Surcharge.&nbsp; Since the GSIB framework was introduced, GSIB scores have been measured at a quarterly frequency with GSIB surcharges depending on measured GSIB scores at the end of the fourth quarter.Recently, both the Federal Reserve and global regulators through the Basel Committee on Banking Supervision (BCBS) have proposed increasing the measurement frequency of these technical indicators.&nbsp; Under the proposals, GSIBs would be required to measure these indicators at a daily, rather than quarterly, frequency.Why this change to longstanding and accepted practice?&nbsp; Regulators have argued that GSIBs engage in “window dressing” to influence the level of their capital surcharges.&nbsp; More specifically, regulators argue that GSIBs manipulate the level of these indicators at the end of the fourth quarter to achieve temporarily lower scores and surcharges.&nbsp; The BCBS recently issued a staff <a href="https://www.bis.org/bcbs/publ/wp42.htm">working paper</a> making this claim.&nbsp; Relatedly, prior research from the Federal Reserve Board conducted a related <a href="https://www.federalreserve.gov/econres/notes/feds-notes/how-do-us-global-systemically-important-banks-lower-their-capital-surcharges-20200131.html">analysis</a> claiming that U.S. GSIBs have engaged in “window dressing.”&nbsp; As a result, regulators have taken the view that high frequency, i.e. daily, calculation of indicators and scores will counteract window dressing behavior by banks.&nbsp; &nbsp;&nbsp;In this blog, we explore the evidence in favor of window dressing using U.S. data from 2018-2023 that is relevant to U.S. GSIBs (Forum members).&nbsp; The data do not present a clear, compelling, and incontrovertible case for systematic window dressing by U.S. GSIBs.&nbsp; We discuss these results in the context of related economic forces that may be influencing GSIBs and non-GSIBs alike.<h3>GSIB Surcharge Mechanics, Data and Analysis Framework.</h3>As discussed, the GSIB Surcharge is based on each GSIB’s “GSIB Score” as measured at the end of the fourth quarter.&nbsp; Importantly, the resulting GSIB Surcharge remains in force for at least one year.&nbsp; As a result, if a GSIB were able to lower its score temporarily at the end of the year it would benefit as the resulting lower surcharge would persist until, at least, the following year.The Federal Reserve requires that both U.S. GSIBs and non-GSIBs track and publicly report the indicators that are needed to compute the GSIB score on a quarterly basis.&nbsp; As of the first quarter of 2024, 37 banks – the eight Forum members and 29 additional U.S. banks - are required to disclose these data.&nbsp; In principle, non-GSIBs are required to disclose these data in case one of them grows large enough to become a GSIB.&nbsp; Practically speaking, given the current GSIB framework, non-GSIBs are not anywhere close to qualifying as a GSIB.&nbsp; As a result, these banks have no incentive to manipulate or “window dress” their indicators and resulting GSIB scores because they are not subject to the GSIB Surcharge.&nbsp; Accordingly, non-GSIBs and their GSIB scores serve as a useful “control” to compare against the GSIB scores of GSIB banks.&nbsp; Importantly, behavior that is exhibited by both GSIBs and non-GSIBs alike can’t reasonably be attributed to “window dressing” as non-GSIBs have no window dressing incentives.In the analysis that follows we compare the change in GSIB scores from the third to fourth quarter for every bank included in the GSIB score measurement sample from 2018-2023.&nbsp;&nbsp; &nbsp;&nbsp;<h3>GSIB Score Behavior at the End of the Year: GSIBs and Non-GSIBs</h3>Below, we show the percentage change in GSIB scores between the end of the third quarter and the end of the fourth quarter for both GSIBs and non-GSIBs over the 2018-2023 period.&nbsp; Conceptually, the percentage change in score is a natural and relevant measure to assess whether window dressing is occurring because U.S. GSIBs are more complex and have correspondingly larger GSIB scores than their non-GSIB counterparts.The results of this analysis are presented in Figure 1.&nbsp; In Figure 1 we provide a dashed line at a value of zero for reference and comparison.&nbsp; A value that is below zero indicates that the score is declining at the end of the year, consistent with the window dressing hypothesis, while a value that is above zero indicates a rising GSIB score at the end of the year, which would portend a rising surcharge contrary to the window dressing hypothesis.<figure class="image"><img src="https://fsforum.com/a/media/7.16.24-blog-chart-.jpg"></figure>Source: Federal Reserve Y-15The first observation from the results presented in Figure 1 is that both GSIBs and non-GSIBs alike display a significant number of cases in which GSIB scores rise at the end of the year.&nbsp; If GSIB score management is a key consideration for GSIBs, it is hard to understand why we would see their scores rise at the end of the year as a rising score would only tend to increase the resulting surcharge.&nbsp;Looking further at Figure 1 does show that there are also cases in which GSIB scores decline at the end of the year.&nbsp; At the same time, however, the data also show that non-GSIBs exhibit a number of cases in which GSIB scores also decline at the end of the year.&nbsp; To the extent that both GSIBs and non-GSIBs exhibit declining GSIB scores at the end of the year, it is difficult to attribute this behavior to “window dressing” as non-GSIBs have no window dressing incentives.&nbsp;&nbsp;If window dressing were a clear and obvious driver of GSIB Scores for GSIBs at the end of the year, we would expect the data presented in Figure 1 to show a clear and obvious difference in the end-of-year behavior of GSIBs and non-GSIBs – a smoking gun if you will.&nbsp; The data presented in Figure 1 reveal quite the opposite.&nbsp; Both GSIBs and non-GSIBs alike exhibit variable GSIB scores at the end of the year that sometime increase, sometimes decrease, and sometimes stay the same.&nbsp; The data presented in Figure 1 do not present any clear and obvious differences between GSIB and non-GSIB behavior at the end of the year. &nbsp;<h3>Jumping to Conclusions: Conflating Seasonal Effects with Window Dressing?</h3>As discussed, regulators have taken the view that GSIBs actively engage in window dressing and that a regulatory response is required to counteract this behavior.&nbsp; The data presented above tell a much more nuanced story.&nbsp;As presented above there is no incontrovertible evidence to support the window dressing hypothesis. If window dressing is not the motivation of year-end score movements, it begs the question “then what is?”&nbsp;The end of every year is typically characterized by various seasonal or “calendar” impacts.&nbsp; For example, firms of all kinds engage in extensive tax planning and take a variety of tax-related actions at the end of the year.&nbsp; End-of-year accounting management is also widely practiced across a variety of industries including banking.&nbsp; Finally, firms also typically renew and renegotiate customer and vendor relationships at the end of the year in a way that may have impacts on overall activity levels and end-of-year GSIB scores.&nbsp; Regulator statements that end-of-year GSIB scores are driven solely by window dressing fail to consider the fact that the adjustment to banks’ financial positions at year-end may be motivated by a number of legitimate purposes other than lowering GSIB surcharges.&nbsp;This point is especially important as a conceptual matter.&nbsp; Simply because regulators observe GSIB scores declining at the end of the year at some banks does not mean that they can assume that all observed end-of-year GSIB score variation is the result of window dressing.&nbsp; More broadly, observing behavior consistent with a preconceived hypothesis does not “prove” that notion to be true when a variety of other reasons may explain the same observed behavior.&nbsp; &nbsp;Importantly, the previously described research conducted by the BCBS and Federal Reserve failed to consider other important sources of GSIB score variation beyond their previously maintained “window dressing” hypothesis.<h3>Conclusion</h3>Regulator concerns regarding window dressing of GSIB scores are not unequivocally supported by the data.&nbsp; Using regulatory data on both GSIBs and non-GSIBs reveal several similarities in the end-of-year behavior of GSIB scores across both GSIBs and non-GSIBs alike.&nbsp; The data do not present a “smoking gun” in favor of GSIB window dressing.&nbsp; Moreover, neither these data nor the data analyzed in other regulator analyses identify the specific intent underlying observed GSIB score changes and do not adequately address the potential impact of typical end-of-year calendar effects that are frequently observed across a range of industries.&nbsp; Regulator proposals to substantially increase the cost and burden of GSIB score reporting through daily reporting requirements should more carefully consider the various potential causes of observed GSIB score behavior.

GSIB Scores and Window Dressing: Where is the Smoking Gun?

FOR IMMEDIATE RELEASE:&nbsp;April 16, 2018&nbsp;CONTACT:&nbsp;Barbara Hagenbaugh, (202) 457-8783&nbsp;WASHINGTON, D.C. —&nbsp;The Financial Services Forum (Forum) today announced that economist Dr. Sean Campbell will direct policy research at the organization.&nbsp; Dr. Campbell comes to the Forum from the Board of Governors of the Federal Reserve System, where he has led economic analysis of bank regulatory policy and conducted extensive research on the links between financial markets and the macroeconomy.&nbsp;In his role as Executive Vice President, Director of Policy Research, Dr. Campbell will lead the Forum’s empirical analysis of the financial sector and study the implications of regulatory policies for the banking industry and the economy.&nbsp;“The Forum banks help propel the economy by serving&nbsp;consumers,&nbsp;businesses of all sizes,&nbsp;and investors,”&nbsp;Financial Services Forum&nbsp;Chairman and Bank of America CEO Brian Moynihan said.&nbsp; “Dr. Campbell has the experience and expertise to help the Forum meet its objectives.”&nbsp;Financial Services Forum CEO and President Kevin Fromer said: “Sean will serve an integral role at the Forum as we work to promote policies that support the important role that the nation’s largest banks play in our economy.&nbsp; We are fortunate to have someone of Sean’s experience, energy, and intellect join the team.”&nbsp;Dr. Campbell has worked at the Federal Reserve Board for nearly 14 years.&nbsp; Most recently, he has served as an Associate Director in the Division of Supervision and Regulation.&nbsp; In that role, he has led the development of near-term policy initiatives, overseen the division’s study of long-term approaches for regulatory policy and design, and directed cost-benefit analysis of rulemakings.&nbsp;Prior to his role in supervision and regulation, Dr. Campbell worked in the Federal Reserve Board’s Division of Research and Statistics, where his research focused on risk management, financial markets, and empirical macroeconomics.&nbsp; Dr. Campbell has also served as an adjunct professor of economics at Johns Hopkins University’s School of Advanced International Studies, where he has taught masters courses in econometrics.&nbsp; He began his career as an assistant professor of economics at Brown University.&nbsp;His research has been widely published, including in the Journal of Business and Economic Statistics and the Review of Financial Studies.&nbsp; He has been invited to deliver presentations on his work and has served as a panelist at a number of conferences and symposiums.&nbsp;Dr. Campbell has a Ph.D. in economics from the University of Pennsylvania and a B.A. in economics from the University of Massachusetts, where he graduated Phi Beta Kappa.&nbsp;Dr. Campbell will join the Forum on April 30.&nbsp;&nbsp;###&nbsp;&nbsp;<h3>About the Financial Services Forum&nbsp;</h3>The Financial Services Forum is a nonpartisan economic policy and advocacy organization comprised of the CEOs of the eight largest and most diversified banking organizations headquartered in the United States. The Forum pursues policies that encourage savings and investment, support deep and liquid capital markets, promote a competitive global marketplace, and ensure people everywhere have the opportunity to participate fully and productively in the 21st-century global economy. &nbsp; &nbsp;

Financial Services Forum Announces Dr. Sean Campbell as Executive Vice President, Director of Policy Research

State Street

FOR IMMEDIATE RELEASE: February 16, 2016

CONTACT: Laena Fallon, (202) 457-8783 

WASHINGTON, D.C. – John Dearie, acting CEO of the Financial Services Forum, issued the following statement in response to Minneapolis Federal Reserve President Neel Kashkari's Brookings Institution speech today:

“The largest financial institutions are smaller and less complex with twice the capital and triple the liquidity since Mr. Kashkari left government to enter politics.  The Fed’s stress tests show that large financial institutions can withstand a crisis far worse than 2008, and the largest banks have 'living wills' to guide an orderly wind-down without putting taxpayer money at risk.

“Of the ten largest global financial institutions, only a few are U.S.-based.  Breaking up the U.S.-based global financial institutions would ensure that one of the U.S.’s most competitive global industries serving companies small and large is turned over to banks based outside the United States.”
###
The Financial Services Forum is a non-partisan financial and economic policy organization comprised of the CEOs of 16 of the largest and most diversified financial services institutions with business operations in the United States. The purpose of the Forum is to pursue policies that encourage savings and investment, promote an open and competitive global marketplace, and ensure the opportunity of people everywhere to participate fully and productively in the 21st-century global economy.

Forum Statement on Minneapolis Fed President Kashkari’s Brookings Institution Speech

Morgan Stanley

Joint Trades Request Extension of Comment Period for Notice of Proposed Rulemaking on Fair Access to Financial Services

The Forum and our member institutions universally share the conviction that injustices against Black Americans must end and that all forms of racism and discrimination are unacceptable in our society.&nbsp; Equality is essential and particularly vital&nbsp;in the financial services industry, where&nbsp;Americans&nbsp;rely on us to keep their money safe, help them prepare for retirement, and&nbsp;extend them credit to fulfill their&nbsp;dreams. While our members have made meaningful strides to building diverse and inclusive workforces&nbsp;that are more reflective of our society&nbsp;and to&nbsp;serving people in all communities, we recognize that much more work needs to be done. We are united in being a part of the solution to achieve a fair and just America.&nbsp;&nbsp;###&nbsp;The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States.&nbsp; Forum member institutions are a leading source of lending and investment in the United States and serve&nbsp;millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.Follow us on Twitter&nbsp;<a href="https://twitter.com/fsforum">@fsforum</a>&nbsp;and on&nbsp;<a href="https://www.linkedin.com/company/financial-services-forum/">LinkedIn</a>.CONTACT:&nbsp;Barbara Hagenbaugh (202) 457-8783 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <a href="mailto:bhagenbaugh@fsforum.com">bhagenbaugh@fsforum.com</a>

United in Building a Fair & Just America

The cost of producing any good or service is a key determinant of the value that it provides to consumers.&nbsp; A business that can produce the same good at lower cost will be able to sell the good at lower prices, which allows consumers to purchase more of the good and to save more or spend more of their money on other goods and services.&nbsp; This is true as well in the context of producing banking services – such as business loans, auto loans, and checking accounts.&nbsp; While most people may not think of banking services as being “produced” in the same way that they think of, say, cars being produced, banking services are indeed produced from a combination of several key inputs such as physical capital, human capital, technology, and borrowed funds.&nbsp; Banks that can produce these services at lower cost can pass some of these savings onto businesses and households while using less of the economy’s valuable resources.&nbsp;<blockquote>Banks that can produce these services at lower cost can pass some of these savings onto businesses and households while using less of the economy’s valuable resources."</blockquote>A fundamental economic concept that relates the size of a firm to the cost of production is the concept of scale economies.&nbsp; Firms exhibit increasing returns to scale when an increase in the size of the firm results in a decrease in the per unit cost of production.&nbsp; As a specific example, a bank that can make 1,000 loans at a cost of $100 per loan and also is able to scale up its business and make 1,100 loans at a cost of $95 per loan exhibits increasing returns to scale.&nbsp; Put differently, the bank can increase its loan output by 10 percent (100 loans) while only sustaining a 4.5 percent ($4,500) increase in costs.&nbsp; In addition to increasing returns to scale, a firm may also exhibit constant returns to scale in which per unit costs neither rise nor fall as the firm grows or decreasing returns to scale in which per unit costs rise as the firm grows.&nbsp;There is good reason to think that the banking industry may exhibit increasing returns to scale.&nbsp; Information technology is a key input into the production of banking services.&nbsp; Loans and other banking services are increasingly produced by organizing, cataloging, and analyzing data with information technology.&nbsp; The past thirty years have seen enormous improvements in our ability to process, manage, and analyze large amounts of data while at the same time technology costs have plummeted.&nbsp; As shown in Figure 1, between December of 1997 and August of 2015, the price index for personal computers decreased by 96 percent while the price index for software declined by 64 percent.&nbsp; As managing more data becomes less costly, holding other expenses constant, a bank can increase the scale of its lending activities significantly without incurring a large increase in costs.&nbsp; The potential presence of returns to scale in the banking industry is important because it has important implications for policies that would limit the size of banks.&nbsp; Accordingly, it is important to understand the nature of scale returns in the banking industry.&nbsp;<figure class="image"><img src="https://fsforum.com/a/figure_1_bigger_blog_a117ecf61e/figure_1_bigger_blog_a117ecf61e.jpg" alt=""><figcaption>Source:&nbsp;<a href="https://www.bls.gov/opub/ted/2015/long-term-price-trends-for-computers-tvs-and-related-items.htm">https://www.bls.gov/opub/ted/2015/long-term-price-trends-for-computers-tvs-and-related-items.htm</a></figcaption></figure>A number of recent research papers have explored the empirical evidence for increasing returns to scale in the banking industry and find significant economies of scale.&nbsp; <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2256059">Mester and Hughes (2013)</a> analyze a sample of several thousand U.S. bank holding companies (BHCs) in 2003, 2007, and 2010.&nbsp; These authors find that, overall, a 10 percent increase in banking sector output only results in an 8 percent increase in costs.&nbsp; What’s more, these authors examine the case for increasing returns to scale across banks of varying size and find that the largest banks exhibit the largest returns to scale.&nbsp; Using data from 2010, they find that banks with total assets in excess of $100 billion experience only a 7 percent increase in cost in response to a 10 percent increase in output.&nbsp;A more recent paper by <a href="https://onlinelibrary.wiley.com/doi/epdf/10.1002/jae.2579">Wheelock and Wilson (2017)</a> also examines the evidence for scale economies in banking using more recent data from 2015.&nbsp; They also find significant evidence in favor of increasing returns to scale in the banking sector.&nbsp; Also, like Mester and Hughes (2013), these authors find that the evidence in favor of increasing returns to scale is most compelling for the largest banks in their sample.&nbsp; Taken together, these studies suggest that increasing returns to scale is a consistent and robust feature of the banking industry and that these effects are largest among larger banks.&nbsp;Finally, a related research paper by <a href="https://www.newyorkfed.org/research/epr/2014/1412kovn.html">Kovner, Vickery, and Zhu (2014)</a> examines how certain banking costs change with the size of U.S. BHCs over the 2003-2012 period.&nbsp; More specifically, they examine noninterest expenses, which includes all bank costs except the cost of borrowed funds.&nbsp; These costs include but are not limited to the costs of compensation, information technology, and legal services. These authors also find that costs relative to bank size decline as bank size increases.&nbsp; According to the authors’ estimates, for an average-sized bank in 2017, increasing its total assets by an additional 10 percent would reduce noninterest expenses by roughly $6 million per year relative to a base case in which there is no relationship between bank size and expenses.&nbsp;&nbsp;These authors also document how increasing size would affect various components of noninterest expense.&nbsp; Table 1 displays the estimated annual reduction in cost relative to a base case in which cost and size are unrelated, for total noninterest expense and five other cost categories resulting from a 10 percent increase in the size of the average BHC in 2017 (i.e., $30 billion).&nbsp; As shown in the table, a 10 percent increase in the size of the average BHC would reduce compensation costs by roughly $3.4 million per year and information technology costs by roughly $300,000 per year relative to the base case.&nbsp; These authors also find some evidence that the identified scale economies are even larger for the largest banks.&nbsp;<figure class="table"><table><tbody><tr><td colspan="2"><h3 style="text-align:center;">Table 1: Economies of Scale in Banking</h3></td></tr><tr><td>Noninterest Expense Category</td><td>Annual Cost Decline Due to 10% Increase in Size of Average Bank Holding Company ($)</td></tr><tr><td>Total Noninterest Expense</td><td>5,871,954</td></tr><tr><td>Compensation</td><td>3,373,792</td></tr><tr><td>Premises and Fixed Assets</td><td>516,325</td></tr><tr><td>Corporate Overhead</td><td>472,472</td></tr><tr><td>Information Technology</td><td>301,307</td></tr><tr><td>Legal Services</td><td>166,921</td></tr></tbody></table></figure>Source: Kovner, Vickery and Zhu (2014), staff calculationsWhile recent research does suggest that larger firms operate more efficiently with lower per-unit costs than smaller banks, some have argued that these results may be indicative of a too-big-to-fail (TBTF) subsidy.&nbsp; Those advancing this view argue that banks perceived as being TBTF can borrow money from depositors and creditors more cheaply than smaller banks, which lowers the cost structure for these banks.&nbsp; The research of both Hughes and Mester (2013) and Kovner, Vickery, and Zhu (2014), however, present evidence contrary to this argument.&nbsp; Hughes and Mester (2013) directly consider the TBTF issue and estimate scale economies for larger banks assuming they face the same borrowing costs as smaller banks and still find significant scale economies.&nbsp; Also, Kovner, Vickery, and Zhu (2014) examine those components of a bank’s cost structure other than borrowing costs and also find scale economies.&nbsp; While it is conceivable that larger banks could benefit from a TBTF perception that lowers borrowing costs, it is unclear how such perceptions would influence the costs of legal services, technology costs, or the costs of other expenses, such as real estate and office furniture costs.&nbsp;While these recent research findings are good news for bank customers, these findings also bear on an important policy debate.&nbsp; Specifically, those considering proposals that seek to limit the size of banks should be aware of the costs that would be borne by households and businesses in the form of more costly banking services given the evidence of increasing returns to scale.&nbsp; While some argue that bank size does have certain financial stability implications, as stressed recently by <a href="https://www.brookings.edu/blog/ben-bernanke/2016/05/13/ending-too-big-to-fail-whats-the-right-approach/">Bernanke (2016)</a>, those implications should be weighed against the cost implications of limiting bank size.&nbsp;Sean Campbell is the Executive Vice President, Director of Policy Research, at the Financial Services Forum.&nbsp;

When Bigger is Beneficial: Scale Economies in the Banking Industry

Recently, the Federal Reserve issued its inaugural <a href="https://www.federalreserve.gov/publications/files/financial-stability-report-201811.pdf">financial stability report</a>.&nbsp; The report highlights the strength of the US banking system and cites increases in capital, liquidity, and long-term funding as clear indicators of a more resilient banking sector.&nbsp; Further, as discussed in a recent <a href="https://www.fsforum.com/types/press/blog/financial-stability-report-strength-of-banking-system/">blog post</a> by our CEO, Kevin Fromer, Forum Members are a primary contributor to these sources of enhanced financial stability as they have contributed $270 billion in Tier 1 capital, nearly $1.5 trillion in high-quality liquid assets, and have substantially increased their sources of stable and long-term funding.&nbsp;<blockquote>In this post, we explore another important feature of large banks that enhances their resiliency and financial stability – asset diversification.&nbsp; The ability of large banks to engage in a wide array of financial activities spreads out risk and provides a degree of protection from lackluster results in any single business or activity.&nbsp; The risk-reducing benefits of diversification, or “spreading your eggs across many baskets,” is a bedrock principle of modern finance that is as relevant to the asset allocation of large banks as it is to personal financial decisions such as diversifying retirement savings between equities and bonds.</blockquote>Table 1 below provides a snapshot of the asset allocation of the banking system over the 2010-2018 timeframe.&nbsp; The table provides a percentage breakdown of bank asset holdings across six important categories: cash and securities, federal funds (bank reserves), real estate loans, all other loans (e.g., auto loans, credit card loans, business loans), trading assets (capital market instruments that banks hold to fulfill client needs), and a residual category that encompasses all other bank asset holdings (e.g., fixed assets such as buildings and real estate).&nbsp; Table 1 shows the average asset allocation among Forum members and all other bank holding companies (BHCs) with total assets below $250 billion over the 2010-2018 period.<figure class="image"><img src="https://fsforum.com/a/table_1_final_2_8e3d4fb670/table_1_final_2_8e3d4fb670.jpg" alt=""><figcaption>Source: Federal Reserve Y9-C, available at <a href="https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx">https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx</a></figcaption></figure>The final row of Table 1 shows a simple and informative measure of diversification – the Herfindahl Index, or HI.&nbsp; The HI is computed by summing the squared asset percentage from each asset category.&nbsp; A completely undiversified bank that held all of its eggs in one basket would show a 100% weighting in a single asset category and would have an HI value of 10,000.&nbsp; A bank that evenly spreads its assets across each of the six categories with an asset weighting of roughly 17% per category would have an HI value of roughly 1,667.&nbsp; Accordingly, banks with lower HI index values are better diversified and more resilient to adverse shocks to any single asset category.As can be seen in the bottom row of Table 1, Forum members are significantly better diversified than other BHCs. &nbsp;The more equal allocation of assets across asset categories for Forum members depicted in Table 1 indicates that Forum members are better diversified and more resilient to an adverse shock to any specific asset category.&nbsp;As a specific example, it is worth noting that relative to other BHCs, Forum members have a smaller asset weighting in real estate loans and larger asset weightings in bank reserves and trading assets.&nbsp; That means Forum members would likely be less impacted by an adverse shock to real estate prices given their smaller weighting in real estate loans.&nbsp; Moreover, real estate is one of the least liquid asset types, and therefore can be difficult to adjust in response to adverse shocks.&nbsp;Figure 1 demonstrates that the improved diversification of Forum members relative to other BHCs depicted in Table 1 is a consistent feature of the data over a long period of time.&nbsp; Figure 1 shows the average HI index for Forum members and the average HI index for all BHCs with total assets below $250 billion since 2010.&nbsp; As the figure clearly shows, Forum members have exhibited substantially lower HI index values, and are better diversified, than other BHCs.&nbsp; It also is interesting to note that Forum members have been improving their degree of diversification since 2010 as the average Forum member HI index has steadily trended down from roughly 2,300 to 1,700 between 2010 and 2018.&nbsp; Accordingly, at the same time that Forum members have increased capital, stockpiled liquid assets, and increased long-term funding, they have also improved their resilience through better diversification.<div class="raw-html-embed"><iframe class="highcharts-iframe" style="border: 0; width: 100%; height: 500px;" src="https://cloud.highcharts.com/embed/Hqh84-pm3/"></iframe></div>Source: Federal Reserve Y9-C, available at <a href="https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx">https://www.ffiec.gov/nicpubweb/nicweb/HCSGreaterThan10B.aspx</a>&nbsp;&nbsp;<blockquote>Diversification is a key risk-management tool that can be used to improve resiliency for individual banks and for the overall financial system.</blockquote>Forum members are well-diversified and have improved their diversification in the past several years.&nbsp; In addition, better diversification implies that Forum members allocate resources more evenly to a wider array of business lines, which improves their ability to serve the wide-ranging needs of businesses households and communities throughout the U.S.&nbsp; Accordingly, the significant diversification of Forum members enhances financial stability and improves their ability to meet the financial needs of their customers. &nbsp; &nbsp;

Don’t Put All Your Eggs in One Basket: Diversification and Large Banks

"Well Positioned to Cushion the Financial Shocks"The <a href="https://www.fsforum.com/types/press/financial-services-forum-statement-on-2020-stress-tests/">results</a> of the Federal Reserve Board’s 2020 stress tests underscored the strength, safety and resiliency of the nation’s largest banks, which have again proven that they can absorb losses and continue to support U.S. businesses and consumers during a time of severe financial stress.In the midst of the COVID pandemic, Forum members have not only weathered the initial economic shocks, they have stepped up to assist customers with relief programs, supported businesses by increasing lending by 15% in Q1 and providing more than 773,000 Paycheck Protection Program (PPP) loans, and they have committed over $2 billion in charitable donations to communities in need.<figure class="image"><img src="https://fsforum.com/a/comp_1_2_827f9d72fe/comp_1_2_827f9d72fe.gif" alt=""></figure>As Federal Reserve Chair Powell recently <a href="https://www.federalreserve.gov/newsevents/testimony/powell20200630a.htm">said in testimony</a> before Congress: “Unlike the 2008 financial crisis, banks entered this period with substantial capital and liquidity buffers and improved risk-management and operational resiliency. As a result, they have been well positioned to cushion the financial shocks we are seeingThe <a href="https://www.fsforum.com/types/press/blog/diversification-and-large-banks/">size and diversification</a> of our institutions make them stronger, more stable and better able to lend and support the economy throughout this period of economic uncertainty. There are undoubtedly more challenges ahead, but after years of building resiliency, Forum members remain confidently poised to support the response to this crisis and our eventual recovery.Forum Spotlight: JPMorgan Chase - A Resiliency Case StudyJPMorgan Chase, like other Forum members, has prioritized resiliency and fortress balance sheets for years, helping the bank to enter the crisis from a position of strength. This allowed the bank to quickly step up and provide significant resources and support through the crisis to clients, employees and the community at large.JPMorgan Chase helped financially-struggling customers with payment deferrals and fee refunds on more than 2 million accounts. The bank quickly put capital to work to help business clients secure more than $45 billion in new credit, and $950 million in new loans for small businesses. Corporate clients raised hundreds of billions in capital, including those in hard hit industries like healthcare, travel and transportation financing, helping them to save jobs and continue to provide the goods and services upon which we all rely.The bank has committed $250 million to support the recovery of vulnerable and underrepresented communities and small businesses and gave essential workers a $1,000 special payment, while continuing to pay those employees who were higher risk and unable to be on-site. And significant investments in technology prior to the pandemic provided JPMorgan Chase with the ability to quickly and seamlessly transition about 70,000 U.S. employees to seamlessly work from home within only weeks.This comprehensive approach to pandemic response – spanning clients, employees and community – is possible because of years of planning and a commitment to the obligation of large financial institutions to support the economy across all cycles. <a href="https://news.jpmorganchase.com/news-stories/jamie-dimons-covid-19-stakeholder-memo">(More from JPMorgan Chase)</a>Lifting Businesses on Main StreetDuring this unprecedented global pandemic, Forum member firms have <a href="https://fsforum.com/a/factsheet_delivering_ppp_06172020_058fba1d30/factsheet_delivering_ppp_06172020_058fba1d30.pdf">worked to help American small businesses</a>, the engines of our economy, stay afloat. They are offering loans and new lines of credit to small business clients, as well as actively participating in the Small Business Administration’s Paycheck Protection Program, which was recently extended by Congress.&nbsp;As of mid-June, Forum banks have made or approved more than 773,000 PPP loans to small businesses, totaling nearly $70 billion. More than half of the loans (55 percent) by Forum members are for small businesses with four employees or less. And nearly half (49 percent) of the loans are for less than $25,000 and nearly 80 percent are for less than $100,000.<figure class="image"><img src="https://fsforum.com/a/pic_1_1024x247_5ff4cc787d/pic_1_1024x247_5ff4cc787d.png" alt=""></figure>The Forum firms participating in the PPP have committed to using net proceeds to support the small businesses, communities, and nonprofits they serve. Citi, for example, has donated $25 million in initial proceeds from PPP to the Citi Foundation, which is deploying $15 million in unrestricted funding of up to $500,000 per Community Development Financial Institutions (CDFI) to support small businesses owned by people of color and low- and moderate-income individuals and communities. <a href="https://www.fsforum.com/coronavirus-response/#supporting-small-businesses">(More on Forum Member COVID-19 Efforts)</a>Forum Spotlight: Morgan Stanley Partners with National Urban League to Expand Financial InclusionMorgan Stanley has <a href="https://www.morganstanley.com/press-releases/morgan-stanley-announces-10-million-to-support-national-urban-le">announced</a> $10 million in grants to support the National Urban League (NUL) and expand a number of critical initiatives in communities where the Urban League operates. The funds will support the following initiatives:<ul><li>Infrastructure support for NUL’s Urban Empowerment Fund, credit union and NUL’s financial literacy and homeowner counseling programs.</li><li>In NULs Workforce Development Program with an emphasis on technology programs that help close the digital divide by expanding broadband access for communities and households that lack affordable highspeed internet.</li><li>A four-year internship program in NUL’s Office of the President to provide rising leaders the opportunity to work alongside NUL’s executive management.</li></ul>“We are excited to have Morgan Stanley’s support to strengthen our highly impactful economic empowerment initiatives, which advance our relentless efforts to close the racial wealth gap in America,” said Marc H. Morial, President and CEO of the National Urban League.This effort builds on Morgan Stanley’s existing commitments to support communities grappling with the economic and health crisis in the wake of the COVID-19 pandemic, including $10 million in grants for Minority Depository Institutions (MDIs), a $10 million investment to support the New York Forward Loan Fund, and $25 million in grants to support the ongoing relief efforts to the global COVID-19 crisis. <a href="https://www.morganstanley.com/press-releases/morgan-stanley-announces-10-million-to-support-national-urban-le">(More from Morgan Stanley)</a>

The Forum's COVID Update: Issue 5

Forum, BPI Submit Comments on Two FSB Discussion Papers on Derivatives and Resolution Planning (2)

Over the past decade or so the banking sector has gone through a number of transformative changes that have had an important impact on the level and types of risk in the banking sector.&nbsp; At the same time, measuring risk is always challenging because risk is inherently intangible and abstract.&nbsp; Fortunately, many economists are devoted to systematically measuring these risks with empirical data and two new pieces of research from the Federal Reserve Bank of New York (FRBNY) shed important light on how risk in the banking sector has evolved over the past decade.&nbsp; In this post, we provide an overview of this research and discuss how the findings relate to regulatory policy.&nbsp; On balance, the findings point to lower risk in the banking sector.<h3>Three Out of Four Risk Measures Have Declined</h3>In <a href="https://libertystreeteconomics.newyorkfed.org/2020/02/have-the-risk-profiles-of-large-us-bank-holding-companies-changed.html">Have the Risk Profiles of Large U.S. Bank Holding Companies Changed</a>?, FRBNY economists examine the trends in four separate risks over the past decade.&nbsp; They consider 1) idiosyncratic risk, or risk that is unique to a particular bank and not shared by other banks, 2) systematic risk, or risk that is shared across the entire banking sector due to common economic and financial developments, 3) systemic risk, or risk that is shared across the banking sector due to severe economic dislocations, and 4) liquidity risk, or the risk that a bank loses access to stable funding to finance the loans and other forms of credit it provides to the economy.&nbsp; Each of these risks is measured using a variety of proxies that are imperfect, but informative about each type of risk over the 2000-2018 period.<h2 style="text-align:center;">Figure 1: U.S. BHCs’ Risk Measures Have Decreased in Recent Years</h2><figure class="image"><img src="https://fsforum.com/a/figure1_risk_95466b435d/figure1_risk_95466b435d.png" alt=""><figcaption>Source: Federal Reserve Bank of New York, Liberty Street Economics: Have the Risk Profiles of Large U.S. Bank Holding Companies Changed?</figcaption></figure>The key findings of the research are depicted in Figure 1, which presents the four risk measures separately for banks (bank holding companies) with total assets between $25 billion and $250 billion and those with total assets greater than $250 billion.&nbsp; Overall, the researchers conclude that “the largest BHCs (bank holding companies) experienced notable declines in idiosyncratic, systematic, and systemic risks after the global financial crisis.&nbsp; However, BHCs appear to be more sensitive to liquidity risks triggered by general stress in funding markets.”&nbsp; The decline in idiosyncratic, systematic and systemic risk is easy to identify from Figure 1.&nbsp; The increase in liquidity risk is more subtle, but the authors do document some increase in their liquidity risk measure for both larger and smaller banks.&nbsp; Taken as a whole, the results indicate a clear reduction in several risk measures and some increase in one measure of liquidity risk.<h3>Liquidity Risk in Focus</h3>The research cited above uses a market-based measure of liquidity risk that correlates movements in bank funding costs with bank stock prices.&nbsp; Such market-based measures are not uncommon in economics, but it is important to carefully consider what they do and do not tell us.&nbsp; Specifically, market- based measures place a lot of credence in the pronouncements of financial markets in assessing risk.&nbsp; It is often useful to benchmark market-based risk measures against other measures that look at more fundamental and readily observable risk characteristics.&nbsp; Thankfully, in the case of liquidity risk, there are a number of other liquidity risk measures to be considered.In <a href="https://libertystreeteconomics.newyorkfed.org/2019/12/banking-system-vulnerability-annual-update.html">Banking System Vulnerability: Annual Update</a>, FRBNY economists (different from the economists referenced above) consider a number of risk measures across the entire banking sector including a “liquidity stress ratio” that measures any mismatch between the liquidity of the assets and liabilities on bank balance sheets.&nbsp; A higher value of the ratio means a greater liquidity mismatch and greater liquidity risk.&nbsp; Unlike the liquidity risk measure considered by the other authors, the liquidity stress ratio is based on an actual measurement of liquidity risk fundamentals and is not based on the market’s assessment of bank liquidity risk.<h2 style="text-align:center;">Figure 2: Trends in Liquidity Risk</h2><figure class="image"><img src="https://fsforum.com/a/figure2_risk_01956b3cf2/figure2_risk_01956b3cf2.png" alt=""><figcaption>Source: Federal Reserve Bank of New York, Liberty Street Economics: Banking System Vulnerability: Annual Update</figcaption></figure>As it relates to liquidity risk, the authors find, as shown in Figure 2, that liquidity risks have declined considerably over the past decade.&nbsp; The authors describe the state of liquidity risk in the banking system as follows, “the largest U.S. banks are in a much stronger liquidity position, on aggregate, than at any point before or during the 2008 crisis.”&nbsp; In addition, the authors also consider the stability of bank funding costs and find that “while unstable funding increased in absolute terms, it was outpaced by a concurrent increase in stable funding, leading to a decline in the unstable funding share.”&nbsp; Accordingly, the banking sector is less reliant on unstable funding sources now than it has been over the past decade.These findings are important for two reasons.&nbsp; First, they provide an important check on market-based measures.&nbsp; Second, the research findings recognize the significant influence that liquidity regulation has had on liquidity risk and the liquidity position of large banks.&nbsp; In addition to the liquidity coverage ratio, large banks are now subject to a number of regulations, including resolution-related liquidity requirements and long-term debt requirements that reduce liquidity risk and help ensure that large banks are funded by a significant amount of long-term and stable liabilities.&nbsp; In particular, as shown in Figure 3, the proportion of Forum member total liabilities accounted for by stable deposits has risen substantially from 37 percent to 58 percent of all liabilities over the past decade.&nbsp; This evidence strongly suggests that large bank funding and liquidity risk has in fact declined rather than risen.<h2 style="text-align:center;">Figure 3: Financial Services Forum Members’ Deposits as a Proportion of Total Liabilities</h2><figure class="image"><img src="https://fsforum.com/a/figure3_risk_1_849eefb047/figure3_risk_1_849eefb047.png" alt=""><figcaption>Source: Federal Reserve Y-9C and staff calculations</figcaption></figure>Finally, it is worth noting that all of the other risk measures considered in the FRBNY’s annual banking system vulnerability assessment point to lower and not higher risk, which is broadly consistent with the previous findings that three of four risk measures have declined over the past decade.<h3>Conclusion</h3>So, where does all of this leave us?&nbsp; One recent research report by FRBNY economists shows that three of four risk measures have declined significantly over the past decade while one market-based measure of liquidity risk has risen somewhat.&nbsp; A second research report from the FRBNY that measures liquidity risk using a fundamental balance sheet measure of liquidity risk shows a significant decline in liquidity risk.&nbsp; Both of these recent research reports provide valuable insight into the level of risk in the banking system and overall point to lower risk in the banking sector.&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;

Recent Trends in Bank Risk: What Does the Research Say?

Comment Letter: Forum Provides Observations and Recommendations to FSB's Evaluation of “Too-Big-to-Fail” Reforms

Morgan Stanley Launches New Program Designed to Create a More Diverse and Inclusive Workplace And Expand The Talent Pool of Black Financial Professionals

Wells Fargo

Wells Fargo Commits to Evaluating Senior Leadership Based On Their Progress In Improving Diverse Representation and Inclusion, Which Will Have a Direct Impact on Year-End Compensation Decisions

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