Bank profits slump 70% as virus rakes businesses, households

Despite tumbling profits, the FDIC said it did not see any systemic issues in the industry. Banks have taken in record deposits in the quarter — a sign of consumer confidence in the bank industry — and the FDIC’s “troubled bank list” remains unchanged from last quarter.

Bank transactions way down.  The banks have also had to set aside more liquidity for potential losses. Risk equalization is out of whack because of the Black Swan. 

Banks accounts are rising, mainly due to technology:

Globally, 1.7 billion adults remain unbanked, yet two-thirds of them own a mobile phone that could help them access financial services. Digital technology could take advantage of existing cash transactions to bring people into the financial system, the report finds. For example, paying government wages, pensions, and social benefits directly into accounts could bring formal financial services to up to 100 million more adults globally, including 95 million in developing economies. There are other opportunities to increase account ownership and use through digital payments: more than 200 million unbanked adults who work in the private sector are paid in cash only, as are more than 200 million who receive agricultural payments.

 Regulated retail banks become ledger companies, not much more.  It is not a good business. And a lot of the new accounts are simply utilities for on line shopping.

Financial times:

“Surveys [already] show a significant tightening of lending standards,” observed Mr Shin. Or as Ms Reinhart notes: “A credit crunch seems really very likely.” No wonder Oxford found that fears about finance were poisoning confidence; or that the chance of a V-shaped economic recovery seems increasingly low.

Money is tight, not loose.  Tax dollars remain tight for some years to come, mainly due to Fed taxes. But non banks respond:

The growth of NBFI assets exceeded that of bank assets over the past decade, reaching 48% of total financial assets at end-2018, from 42% at end-2008 (Graph A, left-hand panel). As of end-2018, the combined assets of NBFIs - consisting mostly of insurance companies, pension funds and other financial intermediaries (OFIs) - stood at $184 trillion, versus $148 trillion for banks.

The Fed needs to cover at least a third of the Treasury interest payments. Otherwise Congress shuts down. The have to continue balance sheet expansion, and it looks to be mostly government bonds.