Big U.S. Banks Shine Brightly Amidst Market Turmoil


As the angst regarding the status of the Federal Reserve's QE3 program continues to roil markets, some brilliant news has been leaking out regarding the biggest U.S. banks. First, Moody's upped its opinion of the big behemoths, raising its outlook from negative to stable -- the first such upgrading since the dark days of 2008.

Now, the Federal Deposit Insurance Corp. has offered up some irrefutable proof of just how much the banking system has improved, noting that the first quarter of 2013 brought in profits topping anything seen over the past six years.

Cranking out profits, rebuilding their ranks
In addition to bolstering the bottom line, the biggest banks have also been bulking up on personnel, often at the expense of their poorer cousins across the pond. Bloomberg notes that, as banks like Bank of America , Citigroup , JPMorgan Chase , and Wells Fargo are ramping up hiring, their British counterparts have cut to the bone, and plan to cut another 189,000 jobs this year.

With employment up 11% from the dark days of 2008, American banks are scarfing up talented employees from the streamlining Brits. The cream of the crop seems to be hailing from Royal Bank of Scotland , from which B of A Merrill Lynch, Citi, and Morgan Stanley have all appropriated former operatives.

Ivy League graduates are heading back to the rejuvenated banking sector, as well. The number of Harvard College graduates who said they were taking jobs on Wall Street increased from 9% last year to 15% in 2013, though still a far cry from the 47% that flooded that particular job market in 2007.

Unclouded horizons?
Still, there are headwinds that could cause these gains to stall, the biggest one being interest rates. Moody's notes speak specifically to this point, saying that low rates are especially important to the banks' continued robust health. The ratings agency does acknowledge that low rates also squeeze margins, and could lead to sloppy underwriting activity that could put the whole sector at risk.

Others see risks, too. The chair of the FDIC also commented on the disappearing net interest margins at the banks under its watchful eye, and cautioned that regulators are ready for any monkey business pursuant to dicey behavior on the part of banks in the quest for higher yields. In addition, the Financial Stability Oversight Council has also warned that rising interest rates could upset markets.

For now, however, banks are basking in the glow of all this positive press, and there's no doubt that it is deserved. The real test will be how these institutions fare when the economy fully recovers. Have they remembered the lessons taught by the financial crisis? Let's hope so.

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