Table 1 Largest banks (by assets) and asset managers (by assets under management), end 2012 Bank  Country Assets $ % of total  Manager  Country AUM $ % of total  ICBC Mitsubishi UFJ Financial HSBC Holdings Deutsche Bank Credit Agricole BNP Paribas JP Morgan Chase & Co Barclays China Construction Bank Bank of America TOP 10  China Japan UK Germany France France US UK China US  BlackRock Allianz Vanguard State Street Fidelity AXA JPMorgan Chase Bank of New York Mellon BNP Paribas Deutsche Bank TOP 10  US Germany US US US France US US France Germany  2,789 2,709 2,693 2,655 2,649 2,516 2,359 2,351 2,221 2,212 25,154  2.5% 2.4% 2.4% 2.4% 2.4% 2.2% 2.1% 2.1% 2.0% 2.0% 22.4%  3,792 2,448 2,215 2,086 1,888 1,475 1,431 1,385 1,303 1,247 19,270  5.6% 3.6% 3.3% 3.1% 2.8% 2.2% 2.1% 2.0% 1.9% 1.8% 28.3%  Sources: The Banker Database “Top 1000 World Banks ranking” (2013), Towers Watson "The World's 500 Largest Asset Managers" (2012) and Bank calculations  BIS central bankers’ speeches  13  References Andonov, A., Bauer, R. and Cremers, M. (2013), “Pension Fund Asset Allocation and Liability Discount Rates: Camouflage and Reckless Risk Taking by U.S. Public Plans?” Adrian, T. and Shin, H. S. (2010), “Liquidity and Leverage”, Staff Report, Federal Reserve Bank of New York, No. 328. Amir, E., Guan, Y. and Oswald, D. (2010), “The Effect of Pension Accounting on Corporate Pension Asset Allocation”, Review of Accounting Studies, 15(2), p.345–366.
It shows a high correlation, with rises in equity prices inducing reallocations into equities. This suggests a potentially significantly pro-cyclical swing in portfolio behaviour. For example, a 10% rise in the S&P on average increases the equity portfolio share by over one percentage point – or around $ billion given the scale of US life insurers’ balance sheets. 6 If done quickly, this could be a potent procyclical amplifier. Similar patterns are evident among life insurers in other countries. A second piece of indirect evidence comes from the behaviour of regulators. There have been several incidences over recent years of regulators loosening regulatory constraints to forestall concerns about pro-cyclical behaviour in a downswing. For example, UK regulators loosened regulatory constraints on insurance companies in the early 2000s following the bursting of the dotcom bubble. This was due to fears of selling pressure on equities being amplified as insurance companies de-risked their portfolios as they neared regulatory constraints. Pension fund regulators have taken similarly-motivated actions recently due to depressed real yields boosting the market value of liabilities. A third piece of evidence comes from analysing the impact of ICPF asset allocation decisions on asset prices. In particular, at the Bank we have analysed the impact of purchases of longterm UK indexed-linked debt by UK ICPFs since the early 1990s (Zinna (2014)). Over this period, the combination of accounting and regulatory rules led to large cumulative purchases of long-term government debt by ICPFs. At the same time, long-term real yields fell from around 4% to around –1%.