Firms are navigating statutory changes and a suite of new regulations that are still evolving and being implemented;2 responding to investor pressures for higher returns in a rising rate and more competitive environment; and seeking to capitalize on fundamental technological advances, while managing the risks associated with cybersecurity and greater competition from potentially disruptive new entrants. One recent observation is that the largest firms in the U.S. appear to be growing increasingly similar in terms of their underlying business models and strategies. This has implications for balance sheet structure, earnings profile, and organizational structure. For example, some firms traditionally focused on capital market activities, are shifting into lending activities, while other more traditional banks, are expanding capital markets activities. In both cases, this serves to diversify the individual firms, while also making them more similar in terms of the business strategies they pursue, the products they offer, and the customers they serve. If firms are responding to the same exogenous forces, this might not be surprising. Indeed, similar observations were made in the late 1990s as the deregulatory forces that culminated in the Gramm-Leach-Bliley Act (GLBA) led to predictions of a few “financial supermarkets” that would offer the full range of financial services to all customers. More recently, industry analysts and commenters have pointed to the range of capital and liquidity regulations that may be pushing firms toward the same target state business model where large firms provide a wider range of financial services.
We examined a range of balance sheet and income statement items, market indicators, and organizational structure data to draw some preliminary conclusions. The results, reported in the appendix, are generally supportive of the notion of greater homogeneity among the largest banks, but a more rigorous assessment of these preliminary conclusions would be a fruitful area of investigation. Why Do We Care? I now turn to a final question – does this matter for supervisors and regulators? I think it does. I will consider four potential reasons why this shift is relevant for the official sector’s concern for 3/5  BIS central bankers' speeches  safety and soundness and efficient financial intermediation: a firm’s risk management approach, the evolution of supervisory focus, the development of macroprudential risks, and allocative efficiency of financial services. I’ll begin with our core microprudential focus on ensuring that banks develop and implement the appropriate risk management infrastructure for their evolving risks. While this is more linked to the changes in business models than greater similarity, the underlying drivers are the same. As banks respond to environmental factors by expanding into new activities or shifting their strategic focus, they naturally face new risks and must adapt their risk management infrastructures along with their evolving business models.