Interest rates have gone up for those seeking loans. Bank profits are up because interest rates have not gone up as much for depositors.
Please consider Big Banks Lean on Main Street for Profit Before Fed’s Pause Hits.
The Fed’s four interest-rate increases last year and a relatively buoyant U.S. economy have boosted what banks can charge for loans, with the average rate the firms earned rising almost 0.5 percentage points in the past year. They’ve also so far been able to limit how much of the hikes they’ve passed on to depositors.
At Bank of America, the consumer unit’s net interest income climbed 10 percent, helping propel the bank to record quarterly earnings.
Bank of America said net interest income growth will slow over the rest of this year, while Wells Fargo & Co. went even further and predicted a decline. And three of the four largest lenders increased provisions to cover consumer loan losses, with Wells Fargo more than tripling the amount it set aside.
“Just for the record, I want to be very clear — we don’t see any evidence of a recession,” Bank of America CFO Paul Donofrio said on a call with reporters Tuesday. “In any event, if a recession were to come, we are very well prepared.”
For now, the Fed’s March reversal and a flat — and at times inverted — yield curve is the more pressing concern. Wells Fargo said net interest income could fall as much as 5 percent this year, while Bank of America sees it growing at half of 2018’s pace.
Still, JPMorgan, which stuck with its outlook for net interest income to climb to more than $58 billion in 2019, sees a silver lining in the Fed’s pause: less pressure to raise rates for its $1.5 trillion deposit base.
Prepared for Recession?
Banks always say they are prepared for recession but history shows they aren’t as soon as recession hits.
That said, US banks are far better prepared than their European counterparts.
ECB vs the Fed
The ECB made a huge mistake with negative interest rates whereas the Fed bailed out US banks slowly over time by paying interest on excess reserves.
Negative interest rates (charging banks instead or paying them) harmed already crippled European banks.
Mike “Mish” Shedlock
Excellent cooment by Runner Dan
Let’s complete the following sentence.
“…the Fed bailed out US banks slowly over time by paying interest on excess reserves AND suspending mark-to-market accounting AND purchasing nearly $2 trillion mortgage backed securities AND easily convincing government to start the Home Affordable Refinance Program AND increasing the conforming loan limits AND the Emergency Economic Stabilization Act AND the Troubled Asset Relief Program AND…” I am running out of breath here.
In other words the Fed threw tons of good money after bad and pushed interest rates down to almost nothing. I wonder what the Fed will do for an encore the next time an economic crisis comes our way? Better question. What options do they have left?
Fundamentally, as long as there remain some able bodieds out there over the next hundred or so generations, there exists some current and future output which can be confiscated and handed to the well connected by way of taxes, “laws.” mandates, bailouts and debasement driven asset appreciation.
While most of Americans’ wealth has already been stolen and redistributed to the leeching classes by the above means, Americans still retain a bit more of it than Venezuelans. Indicating, there is still some years before the theft racket runs fully out of options.
And, what’s truly scary; or no doubt reassuring if you’re one of the well connected leeches on the receiving end of the loot transfers: Even in Venezuela, the dupes seem too indoctrinated to do something meaningful about their situation. Opting instead to settle for an existence as permanent indentured slaves. Give the squalor existence some time, and I’d be surprised if Islamist missionaries can’t find enough of an audience amongst the robbed and downtrodden, to finally break the downward spiral; but that too, will take time. And America is still some years behind Venezuela again.