Hamilton Financial Index Shows Financial Services Industry Safer and Stronger

WASHINGTON, Feb. 28, 2012 /PRNewswire/ -- On behalf of the Partnership for a Secure Financial Future, Hamilton Place Strategies today released the "Hamilton Financial Index: A semi-annual report on the state of our financial services industry."

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The report introduces a new tool that uniquely measures the safety and soundness of the financial services industry, the Hamilton Financial Index. Developed by Hamilton Place Strategies, the Hamilton Financial Index is unique in that it merges both systemic risk and capital levels into one measurement. By combining both measures, the index offers a new way of looking at how the financial industry is addressing risk. The results of the index show that great progress has been made in strengthening the financial services sector.

"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 HPS. "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."

As of the fourth quarter of 2011, the Hamilton Financial Index was valued at 1.15, 15 percent above the historical norm. This value is down from a high of 1.24 in the second quarter of 2011, though significantly higher than the index bottom of 0.46 in the third quarter of 2008.

The Hamilton Financial Index is calculated 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 data in the Hamilton Financial Index report reflects what we are seeing across the industry - financial institutions have done a great deal to become more safe and sound today," said Steve Bartlett, President and CEO for the Financial Services Roundtable. "We are taking strides to ensure a stronger environment for our customers and businesses. With higher capitalization levels and a reduction in outstanding debt, it is clear that financial institutions continue to play a vital role in our economic recovery."

In addition to the Hamilton Financial Index, the report strives to provide a clear evaluation of the safety and soundness of the financial services sector and the value it provides to the economy during the crisis and the ongoing recovery. It is the first in a series of semi-annual reports to coincide with the Federal Reserve Chairman's Humphrey-Hawkins testimony before Congress.

Richard Hunt, President of the Consumer Bankers Association, said, "The U.S. banking system plays a vital role in fulfilling the financial needs of Americans each and every day. Our banks, better capitalized now than pre-crisis years, stand ready to assist consumers and small businesses through loans and other banking services. With the economic recovery continuing to progress, the industry is committed to offering quality consumer financial products, supporting small businesses and investing in communities across the country."

The report also looks at regulatory issues and the intended and unintended impact on the financial sector and the economy. The regulatory spotlight begins with a look at the outcomes of implementing the Durbin Amendment. Key findings include:

• U.S. commercial banks' Tier I Common Capital levels are at an all-time high, and the ratio of loans to deposits has declined 20 percent 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, down 17 percent from the high.
• The total U.S. retirement market is valued at $17 trillion, an increase of 21 percent since 2008.
• Lastly, our regulatory spotlight found in the first four months of the Durbin Amendment's implementation, consumers have seen no decline in merchant prices and reduced account benefits from their debit cards. Foreseeable but unintended consequences of this regulation have resulted in a clear loss of value for consumers.

"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," said Financial Services Institute (FSI) President and CEO, Dale Brown. "Independent financial services firms and their affiliated financial advisors 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."

Hamilton Place Strategies was commissioned by the Partnership to independently study the health of the financial services industry.

Dave Stevens, President and CEO of the Mortgage Bankers Association said, "This report shows that the financial system has the capacity to increase lending and support economic growth. However, that can't happen in the mortgage space until policymakers act to reduce the uncertainties caused by regulation, litigation, and lack of policy direction with respect to GSE reform, Dodd-Frank implementation, national loan servicing standards and loan repurchase requests."

About The Partnership for Secure Financial Future
The Partnership for a Secure Financial Future is made up of the Consumer Bankers Association, Mortgage Bankers Association, Financial Services Institute, and The Financial Services Roundtable. In 2010, the financial services industry employed 5.7 million people, and contributed $1.235 trillion, or 8.4 percent of U.S. GDP.

Through our coordinated efforts, the Partnership will raise awareness of the vital role the financial services industry plays in growing our nation's economy, creating new jobs and supporting small businesses – alongside our commitment to ensure our industry is strong, sound and able to withstand the ebbs and flows of economic challenges.

About Hamilton Place Strategies (HPS)
HPS is a policy and communications consulting firm based in Washington. Our focus and expertise lie at the intersection of government, business and media. Our deep experiences in all of these fields allow us to serve clients who need to navigate the paths between Washington and the private sector.

HPS works with clients on a host of challenges, from crisis management and reputation building to issue analysis and policy strategy. Our support includes outside advisory, as well as deep dive transformational work to directly improve client capabilities.

Our collective prior experience includes decades of work at the highest levels of government, business, and the press—including work in Congress, the White House, the Office of Management and Budget, the Treasury, the Financial Crisis Inquiry Commission, Presidential campaigns, and management consulting.

SOURCE Partnership for a Secure Financial Future