When you want to know how the economy is doing, one easy method is examine how the banks are doing. The banks make most of their money taking in deposits at one rate and lending the money at a higher rate. If people pay their bills on time, the bank will make money. Deposits will include both government money and employees money, while lending their money is primarily mortgages but does include personal loans, loans to go on holidays and credit card fees. The larger banks will have an investment bank division that makes profits on trading and issuance of stocks and bonds. If the stock market is doing well, there will be a desire to buy shares of companies not making money but they could be soon because of their potential growth.

In an article from Reuters, in mid July, the US banks reported on the 2nd quarter and generally it was a good quarter.

Bank of America, Bank of New York Mellon which are 2 of the nation’s largest lenders earn money from charging clients higher interest rates as the Federal Reserve raised borrowing rates. Bank of America made net interest income (NII) rose 14% to $14.2 billion. BofA expects full year NII to up 8% or about $37 billion.

BNY Mellon had a 33% increase to $1.1 billion. PNC was up 15% to $3.51 billion.

State Street which caters to institutional players of mutual fund companies, hedge funds, etc and could not pass on higher rates showed a decline of 12-18% of NII.

Morgan Stanley which has a very large wealth management division, said NII of $2.2 billion was virtually flat.

All the banks noted there were headwinds in the economy – possible pullback in consumer spending, slower loan growth, increased deposit costs. The banks are hoping investment banking which was $15.7 billion, which is the lowest since 2012, in the quarter increases.

Linking to dividend paying stocks, it would seem from the banks’ performance that people have been adjusting to the higher interest rates from the Fed and that is a good thing. The Federal Reserve increases interest rates to slow down the economy to fight inflation. If people are adjusting and that means loan losses are stable or falling which means more profits to the banks.

There are more questions than answers, till the next time – to raising questions.