US Banking Sector hits Record Profits despite Turmoil

The U.S. banking sector has hit an all-time high of about $80 billion in profits for the first quarter of 2023, up 33% from a year ago, despite the severe stress caused by the aftermath of two regional bank failures and the most severe stress since the 2008 financial crisis.

The main reason for the banking sector's bumper profits is the turmoil in the industry. Around half of the total profits of the U.S. banking industry came from the one-time earnings of First Citizens and Flagstar, which acquired the remaining assets of Silicon Valley Bank (SVB) and Signature Bank (SB), respectively, after they were taken over by regulators and resold at a discount in March.

As a result, the first-quarter profits of First Citizens surged to $9.5 billion from $273 million in the same period last year, while the net income of Flagstar increased to $2 billion from about $164 million a year ago.

JPMorgan Chase, the largest U.S. bank by assets, recorded the highest profit, with a profit of $11.7 billion in the first quarter from operations including lending and payment processing, up from $6.4 billion in the same period last year.

The strong first-quarter earnings increase also showed that U.S. banks generally benefited from rising interest rates, low default rates, and an expanding job market despite the anxiety of depositors and investors.

However, the banking sector's bountiful profits are hard to sustain, shown by the fact that the total interest expense of all U.S. banks has increased tenfold from a year ago to $85 billion in the first quarter. This is because banks have raised interest rates higher for depositors. Many U.S. depositors have also moved money into secure accounts, with deposits held in FDIC-insured savings accounts increasing by $400 billion in the first three months of the year.

Nevertheless, the banking sector's all-time high of about $80 billion in profits for the first quarter of 2023 is a remarkable achievement, albeit aided by the turmoil in the industry. The U.S. banking sector's continued growth and resilience remain an important foundation of the U.S. economy.