Efforts by regulators to take risk out of the banking system can have unintended consequences. The requirement for banks to hold more liquid assets is designed to ensure that they can ride out market disruptions but may also have the effect making banks more sensitive to market volatility.In a wrap-up of the major banks' reporting season, Credit Suisse analyst Jarrod Martin noted: "Banks' treasury and markets income was impacted across the board by wider credit spreads. "Higher liquid asset holdings increased the sensitivity of treasury income to market volatility in aggregate."Major bank income from financial market activity was down 23 per cent in the second half of the 2010/11 financial year.Martin calculated that without the big fall in markets income, the banks would have had overall revenue growth of two to three per cent for the half, rather than the flat result that they reported.He said he agreed with ANZ's assessment that trading and markets income would be the most difficult part of the business in the current financial year.ANZ has the greatest exposure to trading and markets income. Financial markets income made up eight per cent of the bank's total income in the second half of 2010/11, compared with six per cent for National Australia Bank and Westpac and three per cent for Commonwealth Bank.