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.

Kevin Stiroh: Supervisory implications of rising similarity in banking Remarks by Mr Kevin Stiroh, Executive Vice President of the Financial Institution Supervision Group of the Federal Reserve Bank of New York, at the Financial Times US Banking Forum "Charting a Course for Stability and Success", New York City, 1 November 2018. * * *  Introduction Thank you very much for the invitation to speak at the “U.S. Banking Forum.” It is a pleasure to be here to talk about the continued evolution of the U.S. financial sector. Before proceeding, I will emphasize that the views expressed today are my own and do not necessarily reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System.1 It is now a decade since the financial crisis and the U.S. banking industry has made tremendous progress in terms of repairing its aggregate balance sheet and building greater resilience. Capital ratios are higher, liquidity pools are deeper, and we’ve seen fundamental improvements in risk management and governance. While there are still areas for continued progress, all of this should help financial firms provide critical intermediation services across a range of macroeconomic and financial market conditions. This progress reflects both the recognition by financial institutions of the need for greater resiliency in order to insulate themselves from shocks and a stronger, more comprehensive, forward-looking regulatory and supervisory framework. Over the same period, we’ve seen continued evolution of the underlying business models for some of the largest U.S. financial firms in response to external forces.