Big banks JPMorgan Chase, Wells Fargo and Citigroup told investors they netted a combined $22 billion this past quarter. Justin Sullivan/Getty Images
After the collapse of Silicon Valley Bank this spring, a lot of the agita in regional banking has cooled off, but national banks are still reaping the benefits. Big banks posted pretty big profits Friday: JPMorgan Chase, Wells Fargo and Citigroup told investors they netted a combined $22 billion this past quarter.
The classic way banks make money — like, the way they teach it in Banking 101 — rests on three words: net interest income.
“What the bank is receiving in interest, and you subtract the interest going out,” said Mayra Rodríguez Valladares, managing principal at MRV Associates.
Banks charge higher interest rates on mortgages or commercial loans or credit cards than the interest they pay you on your checking and savings accounts. And when the Federal Reserve hikes rates from near zero to 5% in just over a year, that net interest margin actually gets bigger.
“Any of the new loans they’ve been originating the last two years, they get to charge more and more. And yet, there is a lag in how much and when the banks pay a higher rate,” Rodríguez Valladares said.
That lag is the biggest reason behind national banks’ profits this past quarter. The big banks know you’re probably not going to leave them even if you could get a slightly higher annual percentage yield elsewhere, and even if you do, they have tons of other depositors and income streams.
Smaller, regional banks though? Not so much, said Zander Yokum at CFRA Research.
“So when they lose deposits, it can actually stop their ability to fund loans. So because of that, they really don’t want to lose deposits, and therefore they pay a higher rate,” Yokum said.
Yokum said the fear-based flight out of regionals into national banks has subsided. But if you’re a bank that’s not too big to fail, you might be too small to be very profitable right now.
“Regional banks are definitely struggling. Concern obviously in the office space and commercial real estate arenas,” Yokum said.
Regional banks often specialize in commercial real estate lending, and demand for office space is still pretty weak.
But while regionals will eat those losses most directly, Kairong Xiao at Columbia Business School said the big banks may not be immune.
“Some of those loans gonna be packaged in the commercial real estate-backed mortgage-backed security,” Xiao said.
And Xiao said those commercial real estate mortgage-backed securities may be on some big banks’ balance sheets, waiting to be marked down.
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FAQs
Big banks posted pretty big profits Friday: JPMorgan Chase, Wells Fargo and Citigroup told investors they netted a combined $22 billion this past quarter. The classic way banks make money — like, the way they teach it in Banking 101 — rests on three words: net interest income.
What bank makes the most profit? ›
The top 10 banks employed a total of 1,318,515 people in 2021. US-based JPMorgan Chase & Co is the leading bank in the US by revenues in 2021.
Where do banks get the majority of their profits? ›
Making loans
The process involves maturity transformation—converting short-term liabilities (deposits) to long-term assets (loans). Banks pay depositors less than they receive from borrowers, and that difference accounts for the bulk of banks' income in most countries.
Who is the number 1 bank in America? ›
JPMorgan Chase, or Chase Bank, is the biggest bank in America with nearly $3.4 trillion in assets. It boasts a vast network of over 4,800 physical branches and more than 15,000 ATMs. With generous bonuses and promotions and a variety of products, Chase is a popular choice for consumers across the country.
What four large banks dominate the banking industry they are? ›
The U.S. banking industry is dominated by four large banks: JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup.
Which bank is strongest financially? ›
#1 Chase Bank
Headquartered on Park Avenue in New York City, Chase holds the most assets of all banking institutions. It offers numerous checking and savings accounts, investment accounts, business accounts and various types of credit cards.
How do bankers make so much money? ›
Investment bankers make money through the fees charged to their clients. As discussed above, this includes underwriting fees for arranging the sale of securities and advisory fees for providing strategic guidance.
Who are the most profitable customers for banks? ›
For banks, the most profitable customers are those who keep several thousand dollars in their accounts, use a teller less than once a month and hardly ever use the call center.
How profitable is owning a bank? ›
Whether you put all of your eggs in the basket of traditional services like checking and savings accounts and loans, or whether you offer a broader financial services portfolio, most banks yield about 10-15% net profit, with 7-10% return on investment or equity.
How do millionaires keep their money in banks? ›
Millionaires also have zero-balance accounts with private banks. They leave their money in cash and cash equivalents and they write checks on their zero-balance account. At the end of the business day, the private bank, as custodian of their various accounts, sells off enough liquid assets to settle up for that day.
The second is payments. So every time you swipe your debit card, you're issuing bank is making money and their other payment services they provide. And the third leg are fees. So overdraft fees, account fees, wire fees, et cetera.
How much money do most banks keep on hand? ›
Banks tend to keep only enough cash in the vault to meet their anticipated transaction needs. Very small banks may only keep $50,000 or less on hand, while larger banks might keep as much as $200,000 or more available for transactions. This surprises many people who assume bank vaults are always full of cash.
What are the top 5 banks in the US? ›
The five largest banks in the U.S., according to domestic assets, are Chase, Bank of America, Wells Fargo Bank, Citibank and U.S. Bank.
