Personal Finance

Tom Hudson: The boring business of banking

thudson@wlrnnews.com

MIAMI HERALD STAFF

There was a time when banking was supposed to be boring. Bankers attracted deposits and were prudent when loaning that money (and more) out. As the Great Recession showed in stark detail, that hasn’t been the case this century.

Since the end of the recession the combined profit at five of the biggest American banks with stock and bond market trading businesses has soared. Despite new regulations aimed at reducing risk at the banks, annual profits have jumped more than 60 percent since the years leading up to the recession, according to economists at the Federal Reserve Bank of New York. While profits have ballooned, the economists also find the profits are more stable than before the economic crisis.

Four of those five largest banks report quarterly results in the week ahead: J.P. Morgan on Tuesday, Bank of America on Wednesday and Citibank and Goldman Sachs on Thursday.

With the Federal Reserve’s own interest rate at zero, banks are encouraged to take risk to find revenue. That may be managing other people’s money, investment banking activities and trading. They also have focused on cutting costs as a way to boost profits.

The continuation of the Fed’s zero percent policy means banks are making less money on each loan – the boring banking business. But as the central bank inches closer to raising interest rates, the boring will become interesting again.

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