Trump’s tax cuts are proving really successful—for banks

Smashing records.
Smashing records.
Image: Reuters/Andrew Kelly
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Thank you, Donald Trump! US commercial banks made a record profit in the first quarter of 2018, which the Federal Deposit Insurance Corporation credited to the Trump administration’s corporate tax cuts, and an increase in revenue with a greater return on assets.

The tax cuts were supposed to unleash economic growth and increase jobs, but so far they’re mainly goosing profits. Since the financial crisis, the total number of full-time employees in banks has hovered around the 2 million mark. There were about 700 more employees in the first quarter than at the end of last year, but that’s almost 5,000 fewer people than a year earlier.

Still, net operating income at banks and savings institutes jumped 28% in the first quarter compared with a year earlier, to $55.9 billion, the FDIC said yesterday. Less than 4% of the 5,606 banks were unprofitable in the first quarter, as loan balances increased.

Without the tax cuts, the industry’s collective net income would have been $49.4 billion, the FDIC estimated.

That said, the FDIC isn’t handing out champagne flutes. Years of record-low interest rates following the financial crisis led banks to decisions that might come back to haunt them now that interest rates are rising. That shift and “an increasingly competitive lending environment have led some institutions to reach for yield,” FDIC chairman Martin Gruenberg said in a statement. “This has led to heightened exposure to interest-rate risk, liquidity risk, and credit risk.” Gruenberg also warns of an “inevitable downturn” that banks needs to be prepared for. He says the current economic expansion is in its latter stage and banks need to be ready to keep lending when it all goes south.

All that pressure is also on fewer banks. In 1984, when the FDIC data starts, there were about 18,000 banks and savings institutions insured by the corporation. Today, the number is at a record low of 5,606.