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Earning flatness does not suggest that banks are taking on undue risk. Certainly a category such as realized securities gains or losses should have made a dramatic change if there was increased risk (volatility) in the banking system. Provisioning expenses were reduced at all banks, which can either be seen as risky behavior or a reflection of higher quality credit portfolios. The reduction in expenses is cited in the report as one of the risks, as banks seek better efficiency but take on more risk to achieve it. Another potentially risky revenue stream comes from trading. Trading income increased but the report notes that the European economic issues have reduced the risk appetite of many banks, again refuting the idea that banks are taking on excess risk in search of higher profits. The one big example at J.P. Morgan of excess risk-taking (Henry & Viswanatha, 2012) does not appear to be indicative of an industry-wide trend.
Conclusion
While the OCC report lists a number of different ways in...
Bank profits are increasing due to lower costs, not higher earnings. It is a reach to suggest that increased efficiency is a major risk factor in the banking system. If anything, the evidence in the report suggests banks have better credit quality, and are not earning more money on risky activities. Unfortunately, the OCC report does not make its own case in this instance.
Works Cited
Henry, D. & Viswanatha, a. (2012). U.S. investigates whether JP Morgan traders hid losses. Reuters. Retrieved November 29, 2012 from http://www.reuters.com/article/2012/07/13/us-jpmorgan-earnings-idUSBRE86C0G420120713
OCC. (2012). Semiannual risk perspective. U.S. Department of the Treasury. Retrieved November 29, 2012 from http://www.occ.gov/publications/publications-by-type/other-publications-reports/semiannual-risk-perspective/semiannual-risk-perspective-spring-2012.pdf
Works Cited
Henry, D. & Viswanatha, a. (2012). U.S. investigates whether JP Morgan traders hid losses. Reuters. Retrieved November 29, 2012 from http://www.reuters.com/article/2012/07/13/us-jpmorgan-earnings-idUSBRE86C0G420120713
OCC. (2012). Semiannual risk perspective. U.S. Department of the Treasury. Retrieved November 29, 2012 from http://www.occ.gov/publications/publications-by-type/other-publications-reports/semiannual-risk-perspective/semiannual-risk-perspective-spring-2012.pdf
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