The FDIC reports that the banking industry earned $35.3 billion in the 3rd quarter, with earnings improving year over year for nine quarters in a row.
Net loans and leases were down .01% from a year ago, while total deposits have increased 7.8%. Lots of money is gushing in, while little is being lent out. The derivatives business is strong increasing 5.9% from a year ago, with notional amount of derivatives outstanding at the end of Q3 being $250.5 trillion.
So how was the money made? After all, net interest income was down 2.2% from a year ago. By putting away 47% less in the loan-loss provision.
Meanwhile the Federal Reserve is planning to re-test the nation’s biggest banks for the fourth time.
Also Bank of America was told to shape up, or the bank’s double secret probation will turn into a very public embarrassment.
The threat of an enforcement action is the latest flashpoint in a tense relationship between U.S. regulators and Bank of America. Directors believe the bank has met demands set out in the 2009 document. Now, “the board’s view is it’s time to take us out of the penalty box,” said one person familiar with the situation. A bank spokesman declined to comment.
Maybe the rough credit sledding isn’t over yet.
{ 7 comments }
Yeah, and don’t worry about the $1.5 trillion of excess reserves, The Fed has those under control. All that means is the entire GDP of the USA could at any time be out in loans if that 1.5 trillion gets loaned at a %10 reserve rate.
In my next life I am a banker! Well, I mean a Citicorp, JPMorgan or Goldman Sachs banker, of course.
Phew! That was a close one. I am glad someone knows what’s going on.
Can someone please explain how putting less in these reserves means earnings go up?
Why is everyone so worried about excess reserves. I think it has been clearly demonstrated that reserves don’t drive loans. The amount of credit lent into the economy is driven by the demand for loans. Has nothing to do with the level of reserves.
The state’s courts have declared that the officers and directors of state-sponsored corporations (including banks) have a fiduciary duty to their shareholders, and must further the interests of the corporation.
Banks are in the business of lending. Their officers and directors are duty bound (according to statist thinking) to go out and find the very best place to loan their assets. That means that, as a practical matter, even in turbulent economic times, banks cannot, as a matter of statist law, sit on their money and refuse to loan it out, even if the do-nothing strategy is probably the best option. They have to choose the best extant alternative.
But because of the statist-sponsored housing and related economic crash, there is no good place to loan one’s money. The good places are few and far between. There is far more supply of paper money to lend than there is a demand by good-credit risks. Banks would prefer to do nothing, or to lend to the State in the form of bonds, but even states and municipalities are going bankrupt. There is no safe harbor these days, from the bankers’ perspective.
So, what to do? The bankers have the State’s bayonet poking them in the back, commanding them to go out and find the best return for their shareholders they can, but every conventional place for the money can be safely predicted to yield a net loss, which is even worse than doing nothing! A mattress would be safer!
So, along comes the Fed to the rescue. Park your “excess” cash here, they say, for a nominal return. At least you won’t rack up even more bad debt.
It is ludicrous to suggest that the Fed’s decision to soak up “excess reserves” by allowing retail banks to park their $1.5 trillion there has no effect on lending. It allows banks to play it safe. It distorts the credit risk parameters they are required to set on every other new loan they make. It gives them an artificial time-out from economic reality.
If that $1.5 trillion were not parked at the Fed, most of it would be in circulation.
I’m not sure that the results of lending it all out would be better, overall, than what we are experiencing now, but you can’t say that parking all that money has had no effect.
I’m not saying that it has no efffect. I am just saying that banks don’t make loan decisions based purely on their reserve position. The amount of loans made is based on the demand for loans and the banks capital position. Maybe it does prevent them from lending but it sure isn’t making them more likely to.
Comments on this entry are closed.