New report assesses structural change in global banking

24 January 2018

Press release

Bank profitability has fallen from pre-crisis peaks but banks have become more resilient to risks, finds a new report by the Committee on the Global Financial System (CGFS). Over the past decade, banks' balance sheets, cost base, scope of activities and geographic presence have been shaped by the impact of the crisis, as well as the resulting changes in regulation, competition and the macroeconomic landscape.

The report, Structural changes in banking after the crisis, outlines common trends but also differences across 21 countries. The banking system data, spanning the years 2000-16, are published alongside the report as a comprehensive reference tool.

"In response to their new operating landscape, banks have been re-assessing and adjusting their business strategies and models," said CGFS chair William C Dudley, also President and Chief Executive Officer of the Federal Reserve Bank of New York. "At the same time, a number of advanced economy banking systems have to confront low profitability and legacy problems."

The report finds that, since the crisis, banks have significantly strengthened their capital and liquidity buffers, as well as their funding structures, in line with the intended direction of regulatory reforms. A stronger banking sector now generally supports the flow of credit to the real economy, although conditions vary across the globe.  Many banks directly affected by the crisis have shifted their businesses away from complex and trading activities and have become more selective in their international activities. In contrast, banks less affected by the crisis, including those in many emerging markets, have expanded internationally.

The decline in bank return-on-equity from historically high pre-crisis rates partly reflects lower leverage and risk-taking, but also sluggish revenues and high costs. Longer-term profitability challenges could also signal overcapacity and the need for further structural adjustment supported by robust bank resolution frameworks.

Looking forward, bank supervisors point to scope for further improving risk management. Central banks must also remain alert to evolving system-wide risks.