Breakingviews - Big U.S. banks keep their powder a bit too dry

A man walks into the JP Morgan headquarters at Canary Wharf in London May 11, 2012. REUTERS/Dylan Martinez/File Photo

NEW YORK (Reuters Breakingviews) - Big U.S. banks are awash with capital, trading like it’s the end of days, and raising abundant capital for their clients. Employees’ pay has held up, and shareholders will soon be the happy recipients of sizeable stock buybacks. But there’s something missing: the lenders aren’t lending.

JPMorgan is an example. Chief Executive Jamie Dimon on Friday heralded record revenue and earnings for his $430 billion bank, with a 34% increase in trading income over 2020. His bank helped clients raise over $2 trillion of capital. And Dimon has funding coming out of his ears. JPMorgan’s retail deposits swelled by one-third to nearly $1 trillion, and capital is well above regulatory minimums. Dimon often refers to his “fortress balance sheet,” and the term is ever more apt.

Yet Dimon’s loan book, a gigantic $985 billion, didn’t grow. The $19.2 billion net increase in loans to consumers and small businesses in 2020 can be accounted for entirely by lending through the Payment Protection Program. Those Covid-19 relief loans are essentially backstopped by the government, and don’t soak up regulatory capital. Of a $39 billion increase in lending that wasn’t to consumers, more than half went to clients in the wealth management division.

JPMorgan is the biggest U.S. lender to report earnings so far, but it’s not the only one keeping its powder dry when it comes to Main Street. Citigroup’s loans to small businesses and consumers barely grew. Wells Fargo increased its small business lending by around $8 billion during the year – though it also said it funded around $10.5 billion of PPP loans.

Perhaps banks have learned their lessons from the last crisis too well. After being bailed out with public money and taxed with tough oversight, they have little reason to lend to borrowers who might not repay. Meanwhile, many business owners don’t actually want to borrow on terms banks are prepared to offer. The Federal Reserve found that even before Covid-19, less than half of small businesses had used a bank to raise money in the past five years. Of those who applied for financing, around half got what they asked for.

For incoming president Joe Biden and his Treasury secretary pick Janet Yellen, that presents a problem and an opportunity. Banks are in good shape, but the economy is not. If one is going to help the other, something will have to give.


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