NEW YORK(Thomson Reuters Regulatory Intelligence) – A growing homogeneity in business models and strategies among U.S. large banks may worsen overall risk in the financial system, warned Kevin Stiroh, the head of supervision at New York Federal Reserve.
Euro and U.S. dollar banknotes are seen in this picture illustration taken in Prague January 23, 2013.
“If firms expand, diversify and become more similar, each might become safer individually. The industry, however, might not be any safer or more resilient. If all firms are effectively the same, they could become ‘systemic as a herd’ and susceptible to the same shocks in a way that leaves the aggregate provision of financial services more volatile,” Stiroh said last week at the Financial Times U.S. Banking Forum(here).
Banks are considered individually safer and more resilient compared to a decade ago due to higher and better capital ratios, deeper liquidity pools, and better risk management practices as a result of regulatory policies implemented in the wake of the financial crisis.
The homogeneity risk within large banks is because they tend to respond in similar ways to changes in regulations, the interest rate environment, and the…
