Coverage of first quarter results from the four largest US retail banks – JP Morgan, Citigroup, Bank of America and Wells Fargo – were dominated by strong earnings. But it is also a story about balance sheets, which have grown to record size. Since the end of 2016, the four banks have added a total of $420 billion in assets, amounting to 64 per cent of their combined common equity tier one capital.
And yet, key regulatory metrics such as their CET1 ratios or supplementary leverage have barely budged. The reasons are twofold: the banks are getting much more optimistic about consumer creditworthiness, and the impact of increasing interest rates on derivatives portfolios.