More Rules, More Fines, More On Balance

Lenders have paid more than $300 billion in fines since the 2008 financial crisis; the growing regulations are slowly forcing stronger balance sheets.

The world’s biggest lenders have paid about $321 billion in fines since the global financial crisis in 2008, according to a report by Boston Consulting Group–a tally that is more likely to go up than down in the years ahead, as European and Asian regulators catch up with their more aggressive US counterparts in levying fines. In 2016 alone, banks paid out $42 billion in fines, a 68% increase over 2015’s total, with North American banks accounting for more than half, or $22 billion, according to BCG.

“The seas of regulatory change have continued to surge worldwide, producing a strong impact on banks’ strategic and operational planning efforts,” say the

authors of the report. “The number of individual regulatory changes that banks must track on a global scale has more than tripled since 2011, to an average of 200 revisions per day.”

While banks have not quite recovered fully from the crisis, the global average performance of banks measured by economic profit has been inching higher since the end of the financial crisis, BCG notes. Where European banks’ balance sheets continued to contract, their US counterparts have been running in the black for the last three years; and Asia-Pacific, South American and Middle Eastern banks have posted profits every year since 2009. The explanation, says Lawrence J. White, professor of economics at NYU Stern School of Business, is quite simple: “Banks outside of the US and Europe have been more consistently profitable because they stayed away from investing in the kinds of assets that were troublesome for the US and European banks.”

BCG predicts that banks will continue to face a tough landscape, despite what it calls “recent political developments in the US,” but White is less categorical. “The fate of the big banks during the Trump era will depend on whether the populist themes from his campaign or the deregulation themes from his campaign prevail,” he says. “So far, it appears that the deregulation theme is prevailing. But only time will tell.”