Growth of the world’s 50 biggest banks over 40 years

15%

24%

45%

66%

95%

0

20

40

60

80

100

1970 1980 1990 2000 2012

Percent Combined assets of the world's 50 biggest banks (% of world GDP)

Sources: The Banker, BankScope, Milken Institute.

List of 28 G-SIBs identified by FSB 8 U.S. banks are highlighted (Data as of 2012)

Bank Home

country

Total

assets

($ bn)

Total

assets

(% GDP)

1. Deutsche Bank Germany 2,800 83.2

2. HSBC U.K. 2,693 110.6

3. Mitsubishi UFJ Financial Group Japan 2,572 43.0

4. BNP Paribas France 2,514 97.4

5. Crédit Agricole S.A. France 2,429 94.1

6. Barclays U.K. 2,410 99.0

7. JP Morgan Chase U.S. 2,359 15.1

8. Bank of America U.S. 2,210 14.1

9. RBS U.K. 2,121 87.2

10. Mizubo Financial Group Japan 1,964 32.8

11. Bank of China China 1,878 22.8

12. Citigroup U.S. 1,865 11.9

13. Sumitomo Mitsui Financial Group Japan 1,727 28.9

14. Banco Santander Spain 1,674 124.9

Sources: BankScope, Financial Stability Board (FSB), IMF, Milken Institute.

Bank Home

country

Total

assets

($ bn)

Total

assets

(% GDP)

15. Société Générale France 1,649 63.9

16. ING Netherlands 1,541 200

17. Groupe BPCE France 1,513 58.6

18. Wells Fargo U.S. 1,423 9.1

19. UBS Switzerland 1,374 220.6

20. UniCredit Italy 1,222 61.7

21. Credit Suisse Group Switzerland 1,008 161.9

22. Goldman Sachs U.S. 939 6.0

23. Nordea Bank Sweden 893 171.6

24. BBVA Spain 841 62.7

25. Morgan Stanley U.S. 781 5.0

26. Standard Chartered U.K. 637 26.2

27. BNY Mellon U.S. 359 2.3

28. State Street Corporation U.S. 222 1.4

Number and assets of the world’s 100 biggest banks by country

China, $12.3 tn

United States, $12.1 tn

United Kingdom,

$9.5 tnJapan, $8.8 tn

France, $6.3 tn

Total assets = $78 trillion

Other

countries, $29.2 tn

United States, 15 banks

China, 12 banks

Japan, 10 banks

Canada, 6 banks

United Kingdom, 5 banks

Total number = 100 banksTotal number = 100 banks

Other

countries, 52 banks

Data as of Q2 2012

Sources: BankScope, Bloomberg, annual reports, Milken Institute.

Bank assets are several times higher than

GDP in some European countries

Sources: BankScope, Milken Institute.

441

358

314

251

189160

131 129 11999

50

0

100

200

300

400

500

Percent Assets of the 4 biggest banks (% of GDP), 2012

Source: Datastream.

Note: Data as of 02/01/2013.

Cyprus: Large bank assets relative to GDP

0

100

200

300

400

500

600

700

800

Cyprus Ireland France Spain Portugal Germany Italy Greece

Bank assets (% country GDP)

Is the global banking system too big?

0

1,000

2,000

3,000

4,000

5,000

Index (1977 = 100)

Global GDP

Global bank assets

Sources: BIS, IMF, Milken Institute.

Note: Global bank assets are international claims of banks in 43 reporting countries to the Bank of International Settlements (BIS); Global GDP is in nominal terms.

The global market in derivatives $700 trillion estimate of the notional value

Source: BIS.

0

100

200

300

400

500

600

700

800

1998 2000 2002 2004 2006 2008 2010 Q2 2012

Exchange-traded derivatives

OTC derivatives

Notional amounts outstanding (US$trillions)

Growth of the 50 biggest U.S. banks over 40 years

25%

33% 33%

49%

97%

0

20

40

60

80

100

1970 1980 1990 2000 2012

Percent Combined assets of the 50 biggest U.S. bank holding companies (% of U.S. GDP)

Sources: The Banker, Federal Reserve System, Milken Institute.

Big U.S. banks are even bigger after taking into account

off-balance sheet derivatives

4.03.7

2.9

1.8

1.4

0.8 0.8

0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.01

0

1

2

3

4 Off-balance sheet derivatives

Reported total assets (U.S. GAAP)

US$ trillions

Sources: BankScope, Bloomberg, annual reports, Milken Institute.

Data as of Q2 2012.

Derivatives activity in U.S. is dominated

by few large banks Top 4 banks hold 93% of all derivatives

Source: OCC’s quarterly report on bank trading and derivative activities, Comptroller of the Currency.

Note: Banks refer to insured U.S. commercial banks and savings associations.

JPMorgan Chase Bank 31%

Citibank National 25%

Bank of America 19%

Goldman Sachs Bank18%

Other banks7%

Notional amount of derivative contracts held by insured U.S. banks

Total: $213 trillion (2012)

Four banks dominate in derivatives in U.S. 2012

Source: OCC’s quarterly report on bank trading and derivative activities, Comptroller of the Currency.

Note: Banks refer to insured U.S. commercial banks and savings association.

0 50 100 150 200 250

Total

Swaps

Futures & Forwards

Options

Credit Derivatives

Notional amount of derivative contracts

Top 4 banks

Other banks

US$ trillions

Global shadow banking system

reached $67 trillion (111% of global GDP)

Note: Data are aggregated for 20 jurisdictions and the Euro area. The shadow banking system is measured by assets of non-bank financial intermediaries.

Source: Financial Stability Board, November 2012.

20

40

60

80

60

80

100

120

140

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Percent Assets of non-bank financial intermediaries US$ trillions

As a % of GDP(left-axis)

US$ trillions (right-axis)

Global banking vs shadow banking systems

0

20

40

60

80

100

120

140

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US$ trillions Total assets by type of financial intermediaries

Banks

Insurance companies and pension funds

Shadow banking

Note: Data are aggregated for 20 jurisdictions and the Euro area. The shadow banking system is measured by assets of non-bank financial intermediaries.

Source: Financial Stability Board, November 2012.

Regulatory reforms to end TBTF

Dodd–Frank Act / New Basel Capital requirements:

• Restrict the size of banks

• Restrict the scope of bank activities

• Require higher capital levels for systemically important banks

• Provide an orderly framework for shutting down troubled banks (“living

wills” and an expansion of the government’s “resolution’’ authority)

Basel III: New capital guidelines and phase-in arrangements

Shading indicates transition period

2011 2012 2013 2014 2015 2016 2017 2018 As of 2019

Leverage Ratio Supervisory monitoring

Parallel run 1 Jan 2013-1 Jan 2017 Disclosure starts 1 Jan 2015

Migration to Pillar 1

Minimum CET1 Ratio 3.5% 4% 4.5% 4.5% 4.5% 4.5% 4.5%

Capital conservation buffer 0.625% 1.25% 1.875% 2.5%

G-SIB surcharge Phase-in

Minimum common equity plus capital conservation buffer 3.5% 4% 4.5% 5.125% 5.75% 6.375% 7%

Phase-in of Deductions from CET1 (including amounts exceeding the limit for DTAs, MSRs and financials)

20% 40% 60% 80% 100% 100%

Minimum Tier 1 Capital 4.5% 5.5% 6% 6% 6% 6% 6%

Minimum Total Capital 8% 8% 8% 8% 8% 8% 8%

Minimum Total Capital plus conservation buffer 8% 8% 8% 8.625% 9.25% 9.875% 10.5%

Capital instruments that no longer qualify as non-core Tier 1 capital or Tier 2 capital

Phased out over 10 year horizon beginning 2013

Liquidity coverage ratio Observation period begins 2011 2015 Introduces minimum standard

Net stable funding ratio Observation period begins 2012 2018 Introduces minimum standard

New EU regulatory structure

European Central Bank Council (ECB President,

and Vice-President and NCBs Governors)

Chairpersons of EBA, EIOPA and

ESMA

A member of the European

Commission

Eu

rop

ea

nS

up

erv

iso

ry

Au

tho

riti

es

Na

tio

na

lS

up

erv

iso

ry

Au

tho

riti

es

Joint Committee of the ESAs

European Banking Authority (EBA)

European Insurance and Occupational Pensions

Authority (EIOPA)

European Securities and Markets

Authority (ESMA)

National Banking Supervisors

National Insurance Supervisors

National Securities Supervisors

Macro

pru

den

tial

su

perv

isio

nM

icro

pru

de

nti

al

su

pe

rvis

ion

General Board

Microprudential Information Exchange Systemic risk

Eu

rop

ea

nS

ys

tem

ic R

isk

Bo

ard

(E

SR

B)

Source: Xavier Vives (2012).

G20 regulatory reform agenda Key elements and status

Internationalguidelines

Agreed (international guidelines)or accomplished (national implementation)Work in progress

Insufficient processNothing available to implement

Nationalguidelines

Bank capital and liquidity

SIFI framework

Shadow banking

OTC derivatives

Credit ratings

Data initiatives

Notes: OTC = over-the-counter; SIFI = systemically important financial institutions.

Source: International Monetary Fund.

History of U.S. banking laws More regulators and more regulations after every crisis

2010

Federal Housing Finance

Regulatory Reform Act

(2008)

National Currency Act

(1863)

1860

1880 1900 1920 1940 1960

1980 2000

Federal Deposit

Insurance Corporation

Improvement Act

(1991)(Banking crisis)

Federal Reserve Act

(1913)(Bank runs)

Depository Institutions

Deregulation and Monetary

Control Act (1980)

(S&L crisis)

National Bank Act

(1864)Garn- St Germain

Depository Institutions Act

(1982)(S&L crisis)

Federal Deposit

Insurance Corp. & SEC

(Great Depression)

Financial Institutions Reform,

Recovery and Enforcement Act

(1989) (S&L crisis)

(Civil War & wildcat

banking)

SarbanesOxley Act

(2002)(Enron and WorldCom

bankruptcies)

Emergency Economic

StabilizationAct

(2008)

Dodd–Frank Wall Street

Reform and Consumer Protection

Act

(2010)

Source: Milken Institute.

New U.S. regulatory structure

National commercial banks and federal

savings banks

State commercial and savings

banks

Hedge funds, private equity

funds and venture capital funds

Insurance companies

Securities brokers/dealers

Other financial companies, including

mortgage companies and brokers

Fed is the regulator when subsidiaries include a commercial or savings bank

• OCC• FDIC

• State bankregulators

• FDIC• Fed--state member

commercial banks

• SEC • FINRA• SEC

• CFTC• State securities

regulators

• Fed• State licensing

(if needed)• U.S. Treasury

for some products

• OCC• Host country

regulator

• Fed• Host country

regulator

Foreignbranch

Foreignbranch

Primary/secondary

functionalregulator

Justice Department• Assesses effects of mergers

and acquisitions on competition

Federal courts• Ultimate decider of banking,

securities, and insurance products

• 50 State insuranceregulators plus

District of Columbia

and Puerto Rico• FIO(oversight)

• Federal Reserve

Nonbank financial and bank holding

companies posing systemic risk

• Federal Housing Finance Agency

Fannie Mae, Freddie Mac, and Federal

Home Loan Banks

• Consumer Financial Protection

Bureau

• Financial Stability Oversight Council

(Treasury, Fed, OCC, CFPB, SEC, CFTC, FDIC, FHFA,

NCUA, OFR, FIO and three state regulators)

Identify emerging systemic risks and

improve interagency cooperation

Protect consumers across the financial sector from

unfair, deceptive, and abusive practices

• National Credit Union Administration

• State credit union regulators

Credit Unions

Source: Milken Institute.

History of banking crises worldwide More frequent (and more severe)

1801 1816 1831 1846 1861 1876 1891 1906 1921 1936 1951 1966 1981 1996 2011

Middle East &

North Africa

Sub-Saharan

Africa

South Asia

East Asia &

Pacific

Latin America &

Caribbean

Europe &

Central Asia

North America

Sources: Reinhart and Rogoff (2008), Milken Institute.