Large banks have a higher percentage of trading assets
If we segregate banks according to their asset size, some very interesting trends emerge in the percentage of earning assets. The first important trend is that larger banks tend to have a higher percentage of trading assets.
There are four banks with asset sizes greater than $1 trillion: Wells Fargo (WFC), JP Morgan (JPM), Citibank, and Bank of America (BAC). These banks have 8.43% of trading assets as a percentage of total assets. Similarly, there are 18 banks with asset books between $100 billion to $999 billion. These banks include some big names like US Bank (USB), Capital One, and PNC Bank. These banks have 2.23% of trading assets as a percentage of total assets.
As banks get smaller, trading assets decline significantly. Banks with an asset size lower than $500 million have negligible trading assets. Such small banks are often not featured in a broad ETF like the Financial Select Sector SPDR (XLF).
Why small banks have a smaller percentage of trading assets
Smaller banks have a very limited asset base. Many of them prefer to focus on higher yielding loans. Trading also requires more specialized skills that take organizations many years to perfect. Thus, most small banks have a low level of interest in trading income and instead focus on increasing their loan book. This is a sustainable long-term strategy for these banks. Banks focusing on investment banking tend to have a higher percentage of trading assets.