With profits and margins at all-time lows, the U.S. banking system is in flux as customer deposits surge and make the safety net for failures fall below a legal limit, The Wall Street Journal (WSJ) reports.
The coronavirus pandemic's disruptions have left banks “flooded with cash and it's hard to know what to do,” said Brian Foran, an analyst at Autonomous Research, according to WSJ.
The information came from the usually-rote quarterly industry report from the Federal Deposit Insurance Corp. Profits, the report found, were around $18 billion across both the first two quarters this year — a massive downward trend from the near $55 billion from 2019.
Meanwhile, increased credit loss provisions came from the banks trying to put away money to shield against future loan troubles, an especially pertinent fear in the pandemic environment with all its uncertainty. The report said there was $62 billion stored away in the second quarter, on top of the already-high $53 billion from the first. Those numbers were huge increases from the past several years, which never saw credit loss provisions going above $20 billion.
The biggest banks put away around $33 billion in anticipation of loan losses, including J.P. Morgan setting aside $10.47 billion, with CEO Jamie Dimon saying the purpose was to brace for the uncertain economy and people maybe not being able to pay loans back.
Lending margins — the difference between what banks make on loans and pay on deposits — shrank to 2.81 percent, WSJ reported, down from 3.39 percent a year prior.
But while all that was going on, customer deposits increased over $1 trillion for two quarters in a row, totaling $2.4 trillion added in just six months. That number is five times higher than any other six-month period, and comes from corporate customers stockpiling to help save their businesses and consumers with nowhere to go having less to spend, WSJ wrote.
The economy seems to be doing fairly well now, according to banks quoted by WSJ, but many of the safeguards, such as government stimulus funds, are likely to run out and plunge the economy further.
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