A study says that U.S. bank profits are soaring thanks in large part to increased lending.
Just five years after the Great Recession officially ended, U.S. banks are raking in the dough, earning more than $40.24 billion in the second quarter.
That’s the second-highest quarterly profit in the last 23 years, according to research firm SNL Financial. Interestingly enough, the near-record profit levels come even as bank executives claim that rising costs of regulation are taking a toll on their business, The Wall Street Journal said.
Banks’ profits were boosted because they’re setting aside less money to protect against bad loans, which commonly happens when the economy rebounds from a recession, as well as increased lending substantially.
“Overall loan growth increased at its fastest quarterly pace since the financial crisis, topping $8 trillion in total loans outstanding for the first time since SNL began tracking the data in 1991,” the Journal said.
Lending has increased to businesses and to consumers. As consumers’ creditworthiness and ability to repay loans improved, banks began to loan more and ease their lending standards, the Journal said.
“The second quarter was an inflection point in the profitability story for banks,” said SunTrust analyst Eric Wasserstrom. “The bad is starting to bottom out, the good is starting to gain momentum.”
Although huge profits for banks may enrage many Americans, especially those who lost their jobs or homes in the recession “due in no small part to Wall Street missteps, if not outright malfeasance,” Ian Salisbury wrote in Money, the fact that banks are making money on lending is really good news:
Lending is what we – even those among us who resent bankers – want banks to do. Lending helps businesses grow and helps consumers buy stuff, both of which ultimately help the overall economy. In fact the anti-banking crowd has been complaining that banks haven’t been doing enough lending. So they should take heart that that’s starting to change, even if it means banks are earning enviable profits in the process.
Salisbury said that even though increased consumer lending is a bonus, it appears there’s still more to be learned from the recession.
Of course, even with some big caveats it can still seem pretty galling that an industry that received billions in government bailouts less than a decade ago is so wildly profitable, if not quite as wildly profitable as it once was. You may be even more irritated when you consider that banks achieved these profits despite paying more than $60 billion in settlements and penalties since … 2008, which suggests they ought to have been asked to pay even more for their contribution to the crisis. And that Wall Street pay has bounced back almost as quickly as profits.
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