In the aftermath of the financial crisis, the Fed kept encouraging big banks (KBE) to lend more.
As of June 30, total loans by JPMorgan hit the lowest amount ($726 billion) since September 2012. Yeah, that's not great, but not terrible either, it’s only a 9-month low.
At the same time deposits hit an all-time high of $1.203 trillion. That doesn’t sound bad; it just shows that JPM is well capitalized.
But behind the façade of engineered figures lurk some troubling questions:
Banks are supposed to lend the money entrusted to them via customer deposits. The interest margin is where banks make their money. Apparently though, the margin business is no longer as attractive as it once was.
Investing customer funds is obviously more profitable than lending. What happens if banks have no incentive to lend?
JPMorgan’s excess deposits are at an all-time high of $477 billion ($1.203 trillion - $726 billion). Where does the excess money go?
The ‘London Whale’ trading disaster, which cost JPM some $3.4 billion (official number), was funded by excess deposits.
With 61%, JPMorgan has the lowest loan-to deposit ratio and leads a trend. The average loan-to-deposit ratio for the top eight commercial banks has dropped nearly 10% in recent quarters.
We don’t know exactly where banks put their money, but we know Wall Street is just plain greedy. Like a horse, big banks will gorge themselves on juicy returns regardless of the consequences.
Until a few weeks ago it's been easier to make money elsewhere. Throw money into the S&P 500 (^GSPC), Nasdaq (^IXIC), junk bonds (HYG) or other sophisticated leveraged instruments, wait and hope, and any bank is almost guaranteed to make more than the interest margin. No doubt that's where money is going and $477 billion (that's just from one US bank) can buy a lot of stuff.
Based on past experience, big banks don't know when enough is enough. Rather than stopping while they're ahead, they'll continue to play until someone gets stuck with a hot potato. Stocks will drop and investors and tax payers get to foot the bill, again.
On the other hand, stock market speculation may just be peanuts for big banks. A recent report shows that the banking cartell has figured out how to manipulate a $900 trillion market, that's 56 times bigger than the S&P 500 market cap.
How does the banking cartell do it? It's simpler than you think (a day old cold sushi may already give you a multi-million dollar break). Read more here:
Simon Maierhofer is the publisher of the Profit Radar Report.
Follow him on Twitter @ iSPYETF
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