Big Banks Stumble and Soar Through Post-SVB Landscape

Photo credit: Joe Mabel/Wikimedia Commons

Sign up for smart news, insights, and analysis on the biggest financial stories of the day.

Americans putting their money in banks are trying on different sizes.

Last month’s bank runs had depositors running straight into the arms of the biggest banks, who are also discovering the flip side of higher interest rates: plumper profits.

Can I Interest You in a Loan?

Jamie Dimon, no doubt fueled by post-2008 PTSD, pulled out all the stops to organize an industry-wide effort to rescue First Republic Bank from the contagion. It turns out he may have been just sweating the small stuff. On Friday, JPMorgan announced its first quarterly earnings results of the year, one headlined by jaw-dropping profits of $12.6 billion, blowing past analyst expectations and marking a more than 50% increase from a year ago. On the same day, Citigroup and Wells Fargo reported increased year-over-year profits of $4.6 billion and $5 billion, respectively.

And while the small bank diaspora played an outsized role in fueling the unexpectedly strong first quarter, it’s Jerome Powell who may be receiving gift baskets from big banks this week. The Fed’s rate hikes have given banks plenty of cover to charge customers more for loans — all while increasing the interest they pay to depositors at a much slower rate. Still, Americans becoming reacquainted with actual interest rates and competition from below may be starting to change that calculus:

  • While the Federal interest rate is currently 4.75% to 5%, JPMorgan is still only paying out 1.85% on interest-bearing deposits, while Wells Fargo is paying 1.22%, and Citigroup 2.72% (these all mark slight, but notable, increases from the end of last year).
  • Regional banks, desperate to keep customers, are paying out much better. Merchants Bank of Indiana offers an introductory yield of roughly 5.4%, while LA-based PacWest Bancorp offers up to 5.5% for shorter-term CDs, according to recent reporting from The Wall Street Journal. Most small banks will report earnings later this month.

Over the Hedge: If the knockdown effects of Silicon Valley Bank’s collapse may be benefiting big banks, they are ushering in renewed scrutiny of a more shadowy corner of the financial services industry: hedge funds, which have globally quadrupled in size since 2009. On Saturday, SEC chair Gary Gensler told the Financial Times that the sector’s habit of speculative investing risks greater financial instability following the bond market upheaval last month.

“We just had Treasury yields move more significantly than they had in 35 years in three days in mid-March,” Gensler told the FT. “When you have that, it’s appropriate as a capital markets regulator to talk to folks and see whether that risk… propagates out.”