JPMorgan Chase, Bank Of America, Citigroup, Goldman Sachs, Morgan Stanley they are all systemically important banks. Apparently, too big to fail. As a representative example, here is JPMorgan for you at the end of Q1 2020:
JPMorgan’s lending*
- Mortgage loans of $196 billion
- Credit Card loans of $154 billion
- Auto loans of $61 billion
- Personal, Student and Small Business loans of $28 billion
- Commercial Real Estate loans of $103 billion
- Commercial and other loans of $473 billion
- Total Loans of $1.02 trillion
JPMorgan’s borrowing*
- Consumer deposits (savings accounts, checking accounts, time deposits, etc.) of $1.84 trillion
- Short-term borrowings of $52 billion
- Long-term debt of $299 billion
- Total Borrowings of $2.19 trillion
This translates into roughly 3.5% average interest earned on loans, net of borrowing costs, times $1.02 trillion of lending = ~$36 billion in interest revenues. Annually.
Here is the full picture of JPMorgan’s revenues: what’s big and what’s changed over the years.
* ‘Lending’ represents the money lent out by JPMorgan to its customers as different types of loans. ‘Borrowings’ show how JPMorgan raises funds to lend - predominantly from deposits maintained by customers with the bank. We have simplified the lending and borrowing sources in the interest of clarity.
Imagine a world where anytime your own personal ability to borrow felt at risk, ever, your rich uncle with an enviable money machine, steps in. This uncle lends you money, licks your wounds, and makes sure everyone knows you have access to his unlimited funds. Most of us don’t have that uncle and consider this so far-fetched, don’t even dream that possibility. That’s a good thing maybe; it shapes our character, keeps us on our toes
This isn’t true if you are JPMorgan or one of the large U.S. banks, though. We all saw this in 2008, and again now. In fact, here is JPM stock comparison of 2020 COVID crisis to 2008.
Whether it’s good or bad is subjective. What we do know is: it keeps the status quo “This is the way!”
If businesses - small and large, homeowners, and people JPMorgan lends money to fall in trouble as a group for whatever reason, and they decide that they can’t pay JPMorgan back for a period, or ever, the rich uncle is right there even before JPMorgan places a call. The U.S. Federal reserve steps in, beefs up confidence and provides access to unlimited funds so that JPMorgan’s borrowers don’t immediately rush to withdraw their money in bank deposits.
How does it help, and who?
This is how the system works: JPMorgan and the other big banks are an important part of the money plumbing of our society. The belief is, we need them to get money efficiently to individuals, and to small and large businesses. It’s a utility. It’s essential. And the Federal Reserve's intervention keeps the system running. Much to debate whether this is right or not, but sure keeps it going.
The primary group of benefactors is the common people. People like us who ‘lend’ money to JPMorgan by maintaining a checking or savings account with the bank. We don’t have to worry about our money with JPMorgan being at risk
Who else? JP Morgan’s stockholders!
Is that fair? Absolutely, if you’re a JPMorgan shareholder, it’s “nice.”
What - not everyone has at least $100K of holdings in JPMorgan’s stock? What about $10K - maybe through your retirement account?
If it isn’t fair, well, what’s the right answer. We all know this - if you’re a large JPMorgan shareholder, and you ask Bernie Sanders what he thinks, you won’t like the answer.
However, it might also be unsustainable
Here’s why: The current system gave rise to at least one Bernie Sanders who believes there is gross inequality. If this continues, there will be many more, and at some point, this current set up between JPMorgan and the Federal reserve will be changed, toppled.
Until then, shareholders rejoice!
This article originally appeared on Forbes.
