Lighter rules help US, UK banks add $1.3tn to balance sheets

Top banks in the US and UK increased their balance sheets by $1.3tn over the past two quarters, according to new research, as looser regulation in both markets gave lenders more room to grow.

The study, from consultancy Alvarez & Marsal and reported by the Financial Times, said deregulation in Washington and London is set to allow major US and UK banks to expand their assets by a combined $2.9tn.

That contrasts with the outlook in Europe. Higher capital requirements for seven of the EU’s largest banks are expected to reduce their balance sheet capacity by €1.3tn ($1.51tn).

In the US, the reforms are expected to free up enough capacity for eight large banks — JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Wells Fargo, Morgan Stanley, BNY and State Street — to increase their balance sheets by $2.5tn, or 15%.

In the UK, three major lenders are forecast to benefit from a $12bn reduction in capital requirements. That would allow them to add $400bn to their assets.

HSBC, Barclays and Standard Chartered have already increased their assets by $200bn over the past two quarters, the research found.

“Global regulators are taking different paths in bank capital reform,” said Fernando de la Mora, co-head of financial services at Alvarez & Marsal.

“The US is going fast and furious. The UK is following, maybe at a slower pace than anticipated, but we will see more.”

The position is different in the EU. Seven major lenders — BNP Paribas, Deutsche Bank, Santander, Crédit Agricole, BPCE, Société Générale and ING — are expected to face a combined €39bn increase in capital requirements.

The report said this reflects a growing divergence in bank regulation from the post-financial crisis framework.

EU banks are still trying to persuade policymakers to soften the new requirements. Bank executives are also pressing the European Commission for relief.

Switzerland is taking an even stricter line. UBS is in dispute with Swiss authorities over a proposal that would raise its capital requirement by $20bn. If implemented, that would cut its balance sheet capacity by $400bn.

The research also said US banks have continued to gain ground in wholesale banking since the start of last year.

Their fixed income and equities trading revenues have grown 5 per cent faster than those of their European competitors over that period.

Among US lenders, Goldman Sachs was identified as the biggest beneficiary of the rule changes, with a three percentage point fall in its capital requirement.

In the first quarter, Goldman cut its core equity tier one capital ratio from 15.1% to 13.3%. Over the same period, its total assets increased by 8% to $1.95tn.

There are also signs that US deregulation is helping banks hold and trade more government debt, one of its stated aims.

According to Financial Times calculations, net Treasury inventories held by large US banks rose to about $550bn this year, up from less than $400bn last year.

“Almost all the money the US banks made in profits, they distributed to their shareholders,” de la Mora said.

“But they were still able to deploy more capital to their businesses by expanding their balance sheets, by doing more lending and increasing capital markets activities.”