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