U.S. and UK banks gain $1.3tn balance sheet opening from deregulation

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US & UK banks gain $1.3tn

Highlights

U.S. and UK bank deregulation enables a combined $2.9tn increase in asset capacity, contrasting with a €1.3tn reduction for seven major EU banks.
Eight large Wall Street banks can expand balance sheets by $2.5tn, led by Goldman Sachs with a 3 percentage point capital requirement cut and 8% asset growth to $1.95tn.
Net Treasury inventories of large U.S. banks rose to about $550bn this year from less than $400bn last year, demonstrating deregulation's impact on government debt trading capacity.

Capital rule changes widen transatlantic gap

As reported by Financial Times, research from consultancy Alvarez & Marsal says deregulation in Washington and London will enable large U.S. and UK banks to grow their assets by a combined $2.9tn, while higher capital requirements for seven of the EU's biggest banks will cut balance sheet capacity by €1.3tn.

U.S. regulators have ushered in a wave of bank deregulation since Donald Trump became president last year, easing many rules introduced after the 2008 financial crisis. The research says this will free up capacity for eight large Wall Street lenders, JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Wells Fargo, Morgan Stanley, BNY and State Street, to expand their balance sheets by $2.5tn, or 15%.

In the UK, HSBC, Barclays and Standard Chartered are set to benefit from a $12bn reduction in capital requirements, allowing them to increase assets by $400bn. Those three internationally focused British lenders have already expanded their assets by $200bn over the past two quarters.

Fernando de la Mora, co-head of financial services at Alvarez & Marsal, says global regulators are taking different paths in bank capital reform. He says the U.S. is moving quickly and the UK is following, albeit more slowly than some expected.

Pressure builds on EU and Swiss rivals

Seven leading EU banks, BNP Paribas, Deutsche Bank, Santander, Crédit Agricole, BPCE, Société Générale and ING, are set to see their combined capital requirements rise by €39bn, highlighting a growing split in the post-financial crisis regulatory framework. EU banks are still trying to persuade policymakers to soften those requirements, and executives are pressing the European Commission for relief.

Switzerland is tightening banking rules more aggressively. Swiss authorities are in dispute with UBS over a proposal to raise its capital requirements by $20bn, a move that would reduce the lender's asset capacity by $400bn.

Alvarez & Marsal says U.S. banks have continued to gain market share in wholesale banking since the start of last year, with fixed income and equity trading revenue growing 5% faster than at their European rivals. Goldman Sachs is the biggest beneficiary in the research, with a 3 percentage point drop in capital needs; in the first quarter it cut its core equity tier one ratio from 15.1% to 13.3% and increased total assets by 8% to $1.95tn.

There are also signs U.S. deregulation is supporting one of its stated aims, improving banks' capacity to trade government debt. Net Treasury inventories held by large U.S. banks have risen to about $550bn this year from less than $400bn last year, while de la Mora says banks are still deploying more capital into lending and capital markets activities even after returning most profits to shareholders.

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