Felix Salmon discusses what he claims is BNYMellon's zero interest rate problem. I'm not sure I believe the claim, but you hear this sort of thing and I'm not sure how to analyze the economics correctly. It is clear that being in a low rate environment is messing with lots of business models. Counting assets in custody also allows double counting of underlying assets, though I don't know how much this occurs here.
BNY Mellon makes its money by managing $26.3 trillion in assets under custody. That’s a bigger number, I think, than is humanly possible to comprehend, but here’s a start: it’s about $4,000 per human being on the planet, or $85,000 per American, or $235,000 per US household, or five times the market capitalization of the S&P 500. It’s a truly insane amount of money. These aren’t BNY’s assets, of course — they all belong to someone else. But BNY looks after them, and reliably looking after that quantity of assets is an incredibly important and stressful and difficult and expensive thing to do.
Now if you have $26 trillion in assets under custody, and you can lend them out at a very modest interest rate, you can make a lot of money. But interest rates have been at zero for three years now, and show no sign of rising any time soon — BNY Mellon, and its custodial rival State Street, are among the biggest losers when it comes to the Fed’s zero interest rate policy.
Personally, I've always been annoyed/jealous of the asset holding and transaction data the custodians have and are now using to trade for their own account. The DoJ should get them to disclose it at some level and force them only to trade on the disclosed data (or something functionally equivalent). What custodians are doing now should (but doesn't currently) count as trading on material inside information. Is Dodd-Frank as implemented going to change this? I have no idea, but I suspect not.
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