However, the non-interest earnings components are generally more volatile, especially if generated by proprietary trading in complex investment banking products. Such earnings components evaporate quickly in a crisis and can put a strain on profitability. This is shown by many empirical studies. We therefore have to assess the relationship between profitability and resistance differently than in the pre-crisis era.
Back then, there were many – but not among supervisors or academics – who believed that there was a one-to-one relationship between profit and risk. We now know this: sustainability is what counts. And sustainability cannot exist in an environment of very high volatility. Those who desire more sustainable profitability and business models have to put stricter limits on proprietary trading.