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...
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