Certainly return on equity (RoE) – a frequently used measure of profitability – is lower now than it was pre-crisis. In 2016, aggregate RoE stood at 5%, compared with close to 20% in 2006. Yet such a comparison may be misleading for two reasons. First, bank capital ratios, particularly core equity, are higher and overall leverage is lower than pre-crisis.
Higher leverage can flatter measured profitability, but as we saw in the crisis it comes with a greater risk of financial instability. The balance sheet repair that banks undertook after the crisis pushed their leverage down.