Bank Earnings Boom as Regulators Relax Rules

Turbulent markets and relaxed regulations are great news for banks — and it shows.

Citigroup and JPMorgan Chase, the first big United States banks to report their first-quarter results, reported on Friday that business was booming on their stock trading desks as markets gyrated wildly during the first three months of the year. And they reaped greater profits from their core lending businesses, thanks to rising interest rates.

Their results could represent the beginning of a new period of vigor for the banking industry, which in recent years has had to contend with a mix of ill winds, including an eerie quiet in markets, which depressed their usually lucrative trading businesses.

Improved business conditions are good news for banks, but the prospect of regulators loosening up their oversight could be even better over the long haul.

Citigroup and JPMorgan both revealed slightly thinner capital cushions in the first quarter, apparently reflecting their expectation that regulators would ease rules for banks in the coming months. With reduced capital buffers, the banks can afford to spend more on repurchasing their shares, distributing dividends to shareholders, paying their employees or lending more to clients.

The reduction in the banks’ capital cushions is slight, but it is a sign that actions by the Trump administration and its appointees are having a concrete impact on the banking industry.

The Federal Reserve this week proposed two changes to its rules for the amount of capital banks need to hold. Big banks will have more freedom to distribute capital to their shareholders than they have had since rigorous capital requirements were imposed in the aftermath of the 2008 financial crisis.

The eight largest United States banks will be able to reduce their capital buffers by a total of $121 billion, the Fed estimates.

JPMorgan’s quarterly results show it has already begun preparing for a more relaxed environment. The bank’s key capital ratio — its safest form of capital measured as a percentage of its assets, adjusted for risk — sank to its lowest level in a year. The bank’s chief financial officer, Marianne Lake, said the Fed’s rule changes came as no surprise, and that JPMorgan welcomed them.

“We don’t think the company needs to continue to accrue capital,” she said.

Wells Fargo also reported quarterly earnings on Friday. The bank’s overall results were better than analysts had been expecting. But Wells warned that it might have to revise its results if two regulators, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, moved to penalize the company for forcing some of its customers to buy unnecessary auto insurance.

The regulators jointly proposed settling their actions against Wells over the auto insurance and another matter for $1 billion.

“At this time, we are unable to predict final resolution of the C.F.P.B./O.C.C. matter and cannot reasonably estimate our related loss contingency,” the company said in a news release.