Bank prof­its near pre-cri­sis peak in US de­spite all the new rules

Muscat Daily - - BUSINESS -

New York, US - The last time big US banks made so much money, the fi­nan­cial world was head­ing to­wards the brink of col­lapse. This time, it’s stiff reg­u­la­tion that’s in dan­ger.

Ten of the na­tion’s big­gest lenders in­clud­ing JPMor­gan Chase & Co and Bank of Amer­ica Corp to­gether made US$30bn last quar­ter, just a few hun­dred mil­lion short of the record in the sec­ond quar­ter of 2007, ac­cord­ing to data com­piled by Bloomberg. The achieve­ment comes just as the in­dus­try’s long cam­paign against post-cri­sis rules finds trac­tion with the Trump ad­min­is­tra­tion.

Banks have been de­cry­ing reg­u­la­tions aimed at curb­ing risk, blam­ing them for hurt­ing cap­i­tal mar­kets and dis­cour­ag­ing lend­ing to con­sumers and com­pa­nies. Pres­i­dent Don­ald Trump, echo­ing those com­plaints, has asked reg­u­la­tors to find ways to ease off. But in this year’s sec­ond quar­ter, banks saw their prof­its propped up by lend­ing op­er­a­tions even af­ter a surge in rev­enue from more volatile trad­ing units sub­sided.

“It shows that the leg­is­la­tion we passed in no way re­tarded the abil­ity of the banks to make money,” said Bar­ney Frank, the former con­gress­man whose name is on the 2010 law tight­en­ing in­dus­try over­sight. Banks are sup­port­ing the econ­omy, he said. And “very specif­i­cally, it re­futes Trump’s claim that we cut into lend­ing. How do banks make record prof­its if they can’t lend - - es­pe­cially when they’re down in trad­ing?”

The sec­ond quar­ter wasn’t a fluke. Even look­ing at the past 12 months, prof­its are still near the same level as 2007.

The 2007 fig­ure in­cludes prof­its from Wall Street gi­ants that were in­de­pen­dent at the time, such as Mer­rill Lynch & Co and Bear Stearns Co, but were ac­quired by larger ri­vals while suc­cumb­ing to the melt­down. The ten firms on the list for this year are US banks with the high­est net in­come that hold at least US$100bn of loans.

Mean­while, reg­u­la­tors around the world over­hauled cap­i­tal rules, re­quir­ing banks to build big­ger buf­fers to ab­sorb losses in an eco­nomic down­turn. They also un­veiled liq­uid­ity rules, seek­ing to en­sure lenders have enough cash or easy-to-sell as­sets to stay afloat if out­side fund­ing flees in a panic.

The in­dus­try has ar­gued the rules went too far and were piled on with­out enough con­sid­er­a­tion for how they’d in­ter­act with each other.

JPMor­gan CEO Jamie Di­mon said July 14 that banks would have made US$2tn more in loans in the past five years if the rules had not been so tight. Small busi­nesses are strug­gling to ac­cess cap­i­tal mar­kets, Di­mon told an­a­lysts on a con­fer­ence call to dis­cuss earn­ings.

While lend­ing has in­creased in the past six years, it doesn’t match the growth rate be­fore the cri­sis. Net loans from US banks climbed 31 per cent be­tween 2011 and the first quar­ter of this year, ac­cord­ing to data from the Federal De­posit In­sur­ance Corp. They grew 54 per cent be­tween 2001 and 2007.

Even if the big banks make as much money as they did be­fore the cri­sis, they’re not as prof­itable as they once were by sev­eral mea­sures. Among firms that sur­vived the crises, re­turn on as­sets is about 35 per cent lower than be­fore the cri­sis. That mea­sures how much they earn on each dol­lar of their port­fo­lios.

Last month, all 34 banks in the Federal Re­serve’s an­nual stress tests passed, the first time that’s hap­pened since the ex­er­cises be­gan in 2009. In­dus­try ad­vo­cates said it shows banks are strong enough to weather a cri­sis, and that it’s time to ease reg­u­la­tion.

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