The Federal Reserve’s policy of keeping interest rates persistently low, which has helped boost bank earnings over the last six quarters, is beginning to make it harder for the biggest U.S. lenders to make money.
Profit margins at U.S. banks may get a boost from increasing deposits as customers show a preference for immediate access to their money and less appetite for risk with interest rates at a record low and the economy still seeking a bounce from recession.
Before Meredith Whitney predicted that municipal defaults in 2011 would total “hundreds of billions of dollars” in a Dec. 19 broadcast of CBS Corp.’s “60 Minutes,” several analysts made similar claims that the market would collapse.
Wall Street banks are creating the “next investment bubble” by selling opaque and unregulated structured notes to investors hunting for yield, according to Christopher Whalen , managing director of Institutional Risk Analytics.
Shoddy mortgage lending has led bankers into a two-front war, pitting them against U.S. homeowners challenging the right to foreclose and mortgage-bond investors demanding refunds that could approach $200 billion.
Four of the largest U.S. banks, including Citigroup Inc. , racked up perfect quarters in their trading businesses between January and March, underscoring how government support and less competition is fueling Wall Street’s revival.