Key Charts - Bank Regulation
Are Higher Leverage Ratios Behind Banks’ Lower Return on Equity?
- Since the financial crisis, banks’ return on equity has fallen as stricter regulations raised tier 1 ratio requirements.
- Return on equity for all the U.S. global systemically important banks (G-SIBs) has trailed the tier 1 capital ratio.
- Many banks have retained profits or issued new shares to comply with the regulations instead of raising capital by debt.
Sources: Bloomberg, Milken Institute.