Largest banks, with higher capital levels in first half, maintain lead over foreigners

The largest U.S. banks increased capital levels in the first half of the year, maintaining their stronger equity capital and stronger price-to-book value than their foreign counterparts, according to data released Tuesday by Federal Deposit Insurance Corp. (FDIC) Vice Chairman Thomas M. Hoenig.

“Competing from a stronger capital position is paying off for U.S. banks,” said Hoenig in a statement. “The data show that the stronger equity capital position of U.S. banks, as compared with their lower-capitalized competitors around the world, is reflected in their higher price-to-book. U.S. banks have demonstrated that they can strengthen their leverage ratios and attain more sound levels of capital while remaining the most competitive and profitable in the world.”

In a release, FDIC said that the average International Financial Reporting Standards (IFRS) tangible leverage ratio – a measure of equity funding a bank’s assets for U.S. “Global Systemically Important Banks” (GSIBs) – increased to 6.62% equity-to-assets at June 30, up from 6.28% at yearend 2016, according to the semi-annual update of the Global Capital Index (GCI). FDIC said that compares very favorably to most foreign banks reported in the GCI.

(The IFRS measures a firm’s tangible equity (loss-absorbing capital) against a more complete reporting of derivative exposures, according to FDIC.)

The statement also noted that U.S. GSIBs continued to trade at a premium, and said that has increased as their capital position has strengthened, reporting a price-to-book ratio of 1.28% over the past six months from a discount to book of 0.90% a year earlier. European GSIBs traded at discount to book of 0.81% and Asian GSIBs were at a discount of 0.72%.

Statement of FDIC Vice Chairman Hoenig on the Semi-Annual Update of the Global Capital Index