The last time big U.S. banks made so much money, the financial world was heading toward 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 $30 billion 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 Cos., but were acquired by larger rivals while succumbing to the meltdown. The 10 firms on the list for this year are U.S. banks with the highest net income that hold at least $100 billion of loans.
That group now generates more than $57 million of profit per working hour.
The Dodd-Frank Act ushered in sweeping changes that included reining in banks’ ability to bet their own money on market prices, setting up a new system to seize and wind down failing firms, and streamlining derivatives dealings. 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 Chief Executive Officer Jamie Dimon said July 14 that banks would have made $2 trillion 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.