Regional Banks Are Relying More on Advisory Services
Focus on advisory services
As interest rates start to rise and lead to slower loan growth, US regional banks are relying more on fee income from financial advice to mid-sized companies and high net-worth individuals to drive revenue growth. Investment banking and wealth management are less capital intensive for regional banks. They can easily build on the relationships they develop with local companies and customers. US banks’ lending growth fell from 6.8% in 3Q16 to 3.5% in 3Q17—the slowest since 2013.
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Banks push for regulatory relief bill
Last month, the Senate Banking Committee reached a deal that would substantially reduce the number of banks labeled as “systemically risky.” It would free them from stricter supervision by regulatory authorities like the Federal Reserve. The bill would be the first major easing of financial regulations after the financial crisis. However, major US banks and big regional lenders are pushing for changes to the bill. It doesn’t offer much relief for major banks, while it lifts a significant burden for smaller banks and custodians. Under the bill, large banks (C) (USB) are still being labeled as “systemically risky.”
Rise in banks’ trading assets
According to an analysis by FT, in the past nine months, the big six banks’ (JPM) (GS) trading assets rose by more than $170 billion. It took the total to $1.71 trillion—the highest since 2012. Banks’ (XLF) gains range from $14 billion at Wells Fargo (WFC) on the lower side to $48 billion at JPMorgan Chase (JPM) on the higher side.