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Bank Conditions Index

About BCI

TCH Bank Conditions Index (TCHBCI) is a quantitative assessment of the resiliency of the U.S. banking sector. The index is constructed using a wide range of indicators that are commonly used to characterize the condition of the banking sector. TCHBCI synthesizes data on 24 banking indicators grouped into six categories: capital, liquidity, risk-aversion, asset quality, interconnectedness and profitability. A description of the methodology used to construct TCHBCI is available, as well as the underlying data and an extended appendix. Both the charts and the data will be updated quarterly. For an analysis of the most recent release see our blog.

Following the aftermath of the past global financial crisis, a series of key capital and liquidity regulations have been enacted — Basel III, annual stress tests, GSIB capital surcharge — which have contributed to an increase in banks’ capital levels, more liquid balance sheets and a reduction in the degree of connection between financial institutions. Among many other potential uses, the TCHBCI will help researchers to assess the impact of changes in the regulatory landscape on overall bank condition as well as a large variety of banking indicators.

A value of the index close to 100 corresponds to a maximally resilient banking sector as it has ever been since the start of the analysis. In contrast, a value close to 0 implies that the U.S. banking sector is as vulnerable as it has even been relative to the start of the sample. A value of the index close to 50 indicates that the level of vulnerabilities is in the midpoint of its historical range.

Bank Conditions Index

Capital

The capital category measures the ability of the banking sector to absorb losses. This category is comprised of both risk-based as well as non-risk based capital measures and includes all four regulatory capital ratios included in the U.S. stress tests and it is augmented with a measure of market leverage developed by NYU Stern’s Volatility Laboratory model.

Liquidity

The liquidity category includes measures of bank liquidity and maturity transformation, to gauge the banking sector’s ability to absorb reductions in the liquidity of its assets or availability of its funding. The measures of liquidity in the banking sector included are a proxy for the maturity gap, short-term wholesale funding, high-quality liquid assets, and the net stable funding ratio.

Risk-Aversion

The risk-aversion category includes measures of bank risk-aversion to assess the vulnerability of banks’ balance sheets to aggregate shocks. This category includes the ratio of loans to gross domestic product, average risk-weights, the ratio of loans to deposits, and changes in lending standards reported in the Federal Reserve’s Senior Loan Officer Survey.

Asset Quality

The asset quality category evaluates the health of banks’ loan books. This category includes the adequacy of loan loss reserves, loan loss reserves and non-performing loans as a share of loans, and net charge-offs.

Interconnectedness

The interconnectedness category captures the extent to which a negative shock could lead to fire sale spillovers that arise when a bank has to liquidate assets. This category includes the ratio of loans made to other depository institutions, repos and federal funds sold to total assets as well as a measure of bank concentration — the Herfindahl index for total asset.

Profitability

The profitability category provides a gauge on the level of bank profitability. Bank profits are a source of strength, that is banks that are profitable are able to increase retained earnings and better able to withstand adverse shocks. This category includes return-on-assets, return-on-equity, net interest margins and the share of non-interest income in total assets.