February 28, 2012

Financial Services Industry ‘Safer, Sounder’: Hamilton Financial Index

Accepted benchmarks for the financial industry have been improving dramatically across the board since the 2008 crisis

Hamilton Place Strategies on Tuesday released its new Hamilton Financial Index, which shows that “great progress” has been made in strengthening the financial services sector since the financial crisis in 2008.

The new index measures the safety and soundness of the financial services industry and merges both systemic risk and capital levels by using two commonly accepted metrics: the St. Louis Federal Reserve Financial Stress Index, which measures 18 stress indicators, and Tier I Common Capital Ratio, which measures a financial institution’s ability to absorb unexpected loss.

“The Hamilton Financial Index reinforces what a large stream of data continues to show: the financial services industry is more safe and sound than at any time during or before the financial crisis,” said Matt McDonald, partner at Hamilton Place Strategies, in a statement. “Whether we look at capital levels, liquidity, asset quality, or exposure to risk, the accepted benchmarks for the financial industry have been improving dramatically across the board.”

Key findings of the index include:

  • The new Hamilton Financial Index, which measures the safety and soundness of the financial services industry, has risen since the crisis. It is now 15% above normal levels of safety and soundness.
  • U.S. commercial banks’ Tier 1 Common Capital levels are at an all-time high and the ratio of loans to deposits has declined 20% since 2007, pointing to a strong foundation for higher levels of lending.
  • Insurance firms’ capital and surplus are also at all-time highs despite an increase in unexpected expenses from natural disasters in 2011.
  • Insurance companies had record payouts to the many individuals who suffered from natural disasters in 2011.
  • While business loans have lagged due to a slow recovery, consumer loans increased dramatically during the recession, helping individuals weather the crisis.
  • The private sector continued to reduce outstanding debt in 2011, declining 17% from the highs.
  • The total U.S. retirement market is valued at $17 trillion, an increase of 21% since 2008.
  • Lastly, our regulatory spotlight found that in the first four months of the Durbin amendment’s (to the Dodd-Frank Act) implementation, consumers have seen no decline in merchant prices and reduced account benefits from their debit cards. Foreseeable but unintended consequences of this regulation, which expands Federal
Reserve powers for setting interchange fees related to debit card transaction processing, have resulted in a clear loss of value for consumers.

The Partnership for a Secure Financial Future, comprised of the Consumer Bankers Association, Mortgage Bankers Association, Financial Services Institute, and The Financial Services Roundtable, held a roundtable discussion on Tuesday to reveal the results of the index.

Dale Brown, president and CEO of FSI, said that “while it is a common misconception that financial services firms are only on Wall Street, we must not forget many in the industry thrive on Main Street, and are critical to the financial futures of Main Street Americans. This report demonstrates the importance of the industry for hard-working Americans as well as the industry becoming safer and stronger.”

Independent financial services firms and their affiliated financial advisors, he said, “are local business leaders in small communities across America. And the men and women they serve are not just their clients but their family and friends. We must keep this in mind as we discuss the future of the industry and its continued growth and strength.”

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