Profits at big U.S. banks soar since crisis: New York Fed

Wed Oct 7, 2015 12:15pm EDT
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By Richard Leong

NEW YORK (Reuters) - Profits have soared since the global financial crisis at the five biggest U.S. banks with market-making dealing operations, New York Federal Reserve economists said in an article released on Wednesday.

From 2009 to 2014, the combined net income of J.P. Morgan, Citigroup, Bank of America, Goldman Sachs and Morgan Stanley annually averaged $41.73 billion, up from annual average of $25.08 billion from 2002 to 2008, they said.

Helping boost profits were trading revenues that they and other dealers have seen returning to the levels before the financial crisis seven years ago, the article said.

"These trading revenue and income figures suggest that dealers continue to play a key role in liquidity provision," New York Fed economists Tobias Adrian, Michael Fleming, Or Shachar, Daniel Stackman and Erik Vogt wrote in their blog titled "Changes in the Returns to Market Making."

The study comes amid warnings by some industry analysts that tighter banking regulations, including higher capital requirements, have significantly cut back dealers' market-making activities. They argue this has reduced liquidity and contributed to "flash" events including the one seen nearly a year ago in the Treasuries market.

But in their article Wednesday, the New York Fed economists said: "We show estimated returns to market making to be at historically low levels — a finding that seems inconsistent with market analysts’ argument that higher capital requirements have reduced market liquidity."

Market makers seek to ensure orderly trading of stocks and bonds. They usually draw on an inventory of securities to provide liquidity when needed.

Wednesday's article is a fourth in a second series from the New York Fed that examines changes in market liquidity in the stock and bond markets.   Continued...

People walk inside JP Morgan headquarters in New York, October 25, 2013.  REUTERS/Eduardo Munoz - RTR4WPSC