Hamilton Financial Index Shows Industry Strength 22 Percent Higher than Historic Norm

Seven-point uptick fueled by capitalization increases

WASHINGTON, July 16, 2012 /PRNewswire-USNewswire/ -- In collaboration with Hamilton Place Strategies (HPS), the Partnership for a Secure Financial Future released today the next edition of the "Hamilton Financial Index: A semi-annual report on the state of our financial services industry."

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The report's findings include an update of the Hamilton Financial Index (HFI), a unique metric that measures the safety and soundness of the financial services industry. As of the first quarter of 2012, the HFI was valued at 1.22, 22 percent above the historical norm. This value is seven points higher than February's reading, and is significantly higher than the index bottom of 0.46 in the third quarter of 2008.

"The Hamilton Financial Index continues to show that the financial services industry is safer and stronger than at any time before the financial crisis," said Matt McDonald, report co-author and HPS partner. "U.S. banks have increased their capitalization to record levels through many efforts, in part to satisfy future regulatory requirements, but also to strengthen their banks.  The financial industry has shown that it can strengthen itself and adapt to new risks as they arise, despite the significant challenges to the U.S. and global economies."

In addition to updating the HFI, the report provides a clear evaluation of the safety and soundness of the financial services sector, and the value it provides to the economy as the recovery continues. Building on the findings of the Index, the report also examines the consequences of policies that require banks to decide between using funds to increase capitalization or to increase lending. The report also reviewed the impact of the ongoing European financial crisis on U.S. banks, and explored the consequences of the fiscal cliff slated to go into effect in 2013.

Key findings include:

• The HFI rose seven points since the previous quarter and stands at 1.22 as of the end of the first quarter. Banks' increase in Tier 1 capital is driving the rise in the HFI. Bank capital levels, which are currently at an all-time high, serve as a key buffer against systemic stress. As a result of high capitalization, stress levels could be five times higher before the HFI falls below historical norms.
  
  
• U.S. banks reduced exposure to the European periphery by more than 16 percent and Europe as a whole by eight percent, from the end of the first quarter of 2011 through the first quarter of 2012.
  
  
• The upcoming fiscal cliff – the debt ceiling, tax rate increases and sequestration –  could be the largest fiscal contraction in four decades, potentially causing a 4% drop in GDP and significant reductions in consumer demand and business investment.

Developed by Hamilton Place Strategies, the HFI 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. It is the second in a series of semi-annual reports to coincide with the Federal Reserve Chairman's Humphrey-Hawkins testimony before Congress.

The HFI 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.

"Four years since the economic crisis, and two years since the passage of Dodd-Frank, financial services firms are safer and stronger today to serve the economy and consumers," said Steve Bartlett, president and CEO of the Financial Services Roundtable, a member of the Partnership. "In this critical time of growth, it is gratifying to see that large banks are holding steady in the face of external pressures and demands."

The Partnership for a Secure Financial Future commissioned Hamilton Place Strategies to independently study the health of the financial services industry.

About The Partnership for Secure Financial Future
The Partnership for a Secure Financial Future is comprised 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 pursuing efforts that 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 The Partnership for Secure Financial Future