Judging the cumulative impact of these changes in a comprehensive way that includes an assessment of costs, benefits, and risks is challenging, but seems an important goal for optimal policy design. 4/5  BIS central bankers' speeches  Conclusion A fundamental challenge for effective supervision is that the landscape is constantly evolving and adapting in response to a wide range of regulatory, financial, and technological forces. This type of dynamism is normal and inherently productive for the industry as firms continue to optimize in order to serve customers efficiently and satisfy investors, but it does raise issues that supervisors must consider. As I’ve discussed, one recent type of evolution is the trend toward greater similarity of the largest financial firms in the U.S. In response, supervisors and regulators must continue their focus on taking a broad perspective on supervision and risks. It is not enough to look at individual business lines or products, but we should continue to focus on enterprise risk management that reflects each business and the interdependencies among them. Moreover, supervisors should be dynamic and continue to evolve as the supervised firms do. Finally, supervisors should continue to develop an industrywide, macroprudential perspective to understand the impact of the continuing evolution of the U.S. financial industry.
Research suggests that in a world with multiple capital constraints, e.g., a leverage ratio and a risk-based capital, banks face incentives to do the same thing rather than 7 2/5  BIS central bankers' speeches  specializing in areas where they each have a natural competitive advantage.7 This type of academic work provides a conceptual framework for understanding how optimizing behavior against multiple constraints might lead banks to pursue similar strategies and become more homogenous over time. Interest Rates A second dominant theme over the post-crisis period has been unconventional monetary policy, both in the U.S. and around the world, which has direct implications for the profitability and returns of U.S. commercial banks. The low rate environment experienced through 2015, for example, constrained bank earnings, particularly net interest income earned through traditional banking activities over this period. More recently, current and expected future returns on equity for large banks have improved, in part reflecting higher interest rates and net interest margins, as well as other factors such as lower tax rates and expectations for a stronger economy. Despite recent improvements, earnings pressures over most of the post-crisis period have pushed banks to reassess business strategies. For example, some banks attempted to enhance returns by building capacity and reach in new businesses; some looked to benefit from scale and scope activities by leveraging existing infrastructure, technology, and processes to offer a broader set of services at lower cost; some looked to reduce risk through greater diversification, and others pulled back from activities outside of their core focus.