Nothing - absolutely nothing - is more important to Americans’ financial security than knowing that their savings and investments are safe and protected. Yet to believe the naysayers in Washington, the latest financial headlines again stir doubts about the safety and soundness of our financial institutions.
To them, the simple reply is, “hogwash.” Here’s the truth from the latest government data and other independent, third-party sources.
Financial institutions - banks and insurers - are in a better position today to withstand market turmoil than they have been in the last several decades. Insured banks have $1.5 trillion in capital - the highest such levels in American banking history. The largest banks - those more than $10 billion in assets - have increased Tier 1, or core, capital by more than 50 percent to $885 billion since the financial crisis. As a result, they’re lending again to consumers and businesses at levels above those recorded before the financial crisis.
As Federal Reserve Chairman Ben S. Bernanke sees it, the financial landscape presents “a picture of a banking system that has become healthier and more resilient.” As a result, contends columnist Robert Samuelson, our banking system “is far stronger now than before the 2007-2009 financial crisis.”
Financial institutions, as an industry, have put their house in order. The level of regulatory capital at our commercial banks hit another record high at the end of the January-March quarter. Over the past four years, their capital buffer has improved by nearly 50 percent. At the same time, their riskiest assets as a percentage of total assets have declined by double digits since reaching their high. As for property and casualty insurers, they have improved their net worth by 9 percent year over year, a measure of their financial strength and capacity to underwrite risk.
What does it all mean? It means taxpayers are no longer on the hook for bank failures. That distinction ended with a number of strong legal, regulatory, market and capital changes. Shareholders and private capital are now responsible for losses.
The industry is governed by more stringent oversight today than at any time in history. The Dodd-Frank Act imposes a great variety of new requirements and restrictions regarding the business activities, capital, liquidity, governance and risk-management practices of large financial institutions. Many of these improvements make the industry safer and stronger. Adverse consequences such as decreased credit availability and lost global competitiveness, however, could result if certain Dodd-Frank requirements are carried too far. The Financial Services Roundtable has cataloged more than 100 independent reports and studies showing that the cumulative weight of new rules could negatively impact the industry and economic recovery.
Greater oversight of systemic risk also exists. The new Financial Stability Oversight Council oversees the level of risk throughout the financial system and identifies and heads off emerging trends that could grow to be a threat to financial stability. It isn’t alone in its new risk-monitoring responsibilities. The Federal Reserve, Office of the Comptroller of the Currency, the Federal Deposit Insurance Commission and the Office of Financial Research all have similar mandates. But they employ a variety of different policy and regulatory tools to decrease system risk significantly.
For American consumers and business owners, other vital benefits accrue from financial institutions’ strong balance sheets. Banks are further supporting the nation’s economic rebound by increasing their loans to consumers and business. In the first quarter, total business loans reached $2 trillion, slightly above pre-recession 2007 levels, which is powerful news for our economic recovery.
Aggregate loans, including those to consumers, top $7 trillion, another high in years. In addition, financial institutions have made 5 million permanent modifications to mortgages since 2007 for homeowners devastated by falling home prices and tougher regulatory standards.
In righting their own houses, financial institutions have emphasized accountability for themselves and their shareholders, not taxpayers. They’re committed to small-business lending and assisting our economic recovery by financing, investing and lending to help create jobs. They’re dedicated to their customers and communities because they’re an essential part of Main Street.
Safety and soundness is the new reality. And if folks tell you different about the safety and soundness of our financial institutions, simply give them the facts.
Steve Bartlett is president and CEO of the Financial Services Roundtable.
By Andrew P. Napolitano
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