State Street shrinks gap in the custody assets race

Boston-based bank reports largest quarterly increase among top US custodians

Assets under custody and administration (Auca) at the three largest US custody banks rose in the third quarter of the year, hitting an all-time high.

Total Auca stood at $120.6 trillion at end-September, up 1% quarter on quarter, and 16% year on year.



State street led the charge with a quarterly increase of $740 billion (2%) to $43.4 trillion. BNY Mellon followed suit with a $300 billion (1%) increase to $45.3 trillion. On the flip side, JP Morgan’s Auca fell $160 billion (0.5%) to $31.9 trillion.

On the year-ago quarter, State Street reported the largest increase, at $6.7 trillion, followed by BNY Mellon, at $6.7 trillion and JP Morgan, at $3.4 trillion.

State Street reduced the gap with BNY Mellon to $1.9 trillion, down from $2.4 trillion in the second quarter.

What is it?

Custody banks are those engaged in safekeeping and servicing client assets. BNY Mellon and State Street are the only two US global systemically important banks (G-Sibs) considered custodians, although JP Morgan, Citi and Northern Trust also run large custody businesses.

Assets under custody – a smaller portion of Auca – form one of the indicators of systemic risk top US banks have to report in FR Y-15 filings with the Federal Reserve. Banks must report the value of all assets, including cross-border assets, that they hold as a custodian on behalf of customers, including other financial firms.

The values reported to the Fed eventually go on to inform annual G-Sib scores at the Basel Committee.

The three indicators making up the substitutability category – assets under custody, payments and securities underwriting – have their average aggregated score capped at 500 basis points.

Why it matters

The three largest custodians keep accumulating assets – a relatively low-risk activity – while the Basel Committee continues to ponder whether to scrap the cap on the substitutability measure. 

For how long regulators will turn the other way and keep the lid on the score is unclear. Should the committee decide to amend its assessment methodology, JP Morgan might still escape a higher surcharge by diverting part of its business away from the custodian arms of the bank. But for BNY Mellon and State Street, for which custody is the focus of their business, it could be a significantly different story.

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