The Rise of the Independent Prime Broker
The post-COVID market has dealt a host of challenges to many on Wall Street. Stubborn inflation, an aggressive Fed, compressing profitability, and changing volatility patterns across asset classes — all underpinned by geopolitical concerns — have banks keeping a close eye on the state of their balance sheets. As a result, Common Tier 1 (CET1) Capital ratios are falling, driven by increasing Risk Weighted Assets (RWAs), further tightening the supply of capital available for facilitating loans and trading (i).
More than a Bank Function
Today’s large banks are a collection of so many businesses that it is easy to forget that investment banking, retail wealth management, trading, wholesale banking, and prime brokerage are all housed under one roof. From the vantage point of any one client segment, the balance sheets of large banks are a complex array of products that seem far removed from their business and capital needs. Capital, already scarce, is in demand by each of the businesses that make up the bank. Similarly, every business needs investment to modernize processes, data access, infrastructure, and technology.
No one business exists in a vacuum. The competition for capital and investment among banks’ different businesses is fierce. Prime brokerage is no exception.
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https://www.clearstreet.io/insights/the-rise-of-the-independent-prime-broker
i) The RWA increase will be further increased by the implementation of additional discretionary surcharges for U.S. globally systemically important banks (GSIBS).
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