A new tool that measures systemic risk and capital levels has found that "great progress has been made in strengthening the financial services sector," which should come as good news for job seekers as well as those who have shied away from the sector because of employment uncertainty in favor of safer industries.
In a statement released today, Washington-based consultancy Hamilton Place Strategies (HPS), working on behalf of the Partnership for a Secure Financial Future, announced that it has developed the "Hamilton Financial Index: A semi-annual report on the state of our financial services industry."
The index measures the safety and soundness of the financial services industry by merging systemic risk and capital levels.
"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.
"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," said Financial Services Institute (FSI) President and CEO, Dale Brown.