‘Biggest national banks will be forced to take more risk’: report
NEW YORK — Major U.S. banks will have to take “more risk” to stay competitive, according to a new study by investment banking firm Liquidity Advisory Group.
It is the first time that analysts have laid out such a sweeping recommendation, which is not only based on the financial strength of the financial system but also on the level of uncertainty that investors and traders have about the global economy.
The analysis, conducted by Liquidity Advisors and the New York Stock Exchange, finds that major banks, including JPMorgan Chase, Bank of America, Bankers Trust and Wells Fargo, will have an incentive to take on more risk, which they can do by using new technology to lower costs, reduce capital costs and increase leverage.
Banks have taken the lead in the effort to increase leverage in recent years, and the analysts found that the banks will use new technology such as automated teller machines and other systems to reduce costs, such as the use of higher-quality customer data and customer retention programs.
They also have increased leverage because they can pay less interest on deposits to lower the interest rate on their reserves.
Liquidity Advisers estimates that the financial industry’s overall financial system will have $2.6 trillion in total assets and $5 trillion in reserves, with $1 trillion in assets held in a bank and $1.4 trillion in cash.
The analysis also projects that banks will need to add between $1 and $3 trillion in capital to stay ahead of inflation.
The analysts, who have been studying the financial sector for over a decade, say that while the financial markets have become safer, banks are still at risk of having a financial crisis.
They are also concerned about the cost of capital and how much capital the banks have.
They note that banks have been using cash reserves to finance new investment in their operations and that this trend will continue.
“The new technology in our system is a direct consequence of this, as banks have no option but to hold more cash reserves and therefore need to make more money,” said William G. Shiller, the firm’s founder and former president.
“The current economic environment is making it difficult for banks to generate additional capital.
They need to be more aggressive in capitalizing on opportunities to reduce their risks and be able to use their new technology effectively.”
For example, the banks’ balance sheet has shrunk over the last two years as they have reduced their cash reserves, which are more akin to investments in a pension fund than assets that can be easily converted to dollars or euros.
This has led to more uncertainty in markets.
Liquidity Advisor also estimates that banks are spending more on capital and that it will be difficult for them to keep up with the demands of new customers, which could lead to higher costs.
In addition, Liquidity Advisor says that banks need to invest more in research and development to increase their risk tolerance.
The firms say that these efforts will help to reduce the number of bad loans that banks issue and increase the likelihood that they will be able for customers to get a better rate of return.
In an interview with CNNMoney, Shiller said that banks should be looking at how to use more leverage and make it harder for their competitors to take advantage of them.
“They have a great ability to take risks, but they can also be very aggressive,” he said.
“And it’s an old story.
The big banks have always been very aggressive, and they will have a big competitive advantage if they have to do more of that.”