What Banks' 3rd-Quarter Reports Might Reveal About The State Of The U.S. Economy

Oct 14, 2020
Originally published on October 14, 2020 1:04 pm
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ARI SHAPIRO, HOST:

People and businesses rely on banks for things like loans and credit cards, so the health of big banks reveals a lot about how the economy is doing. This week, the biggest banks are reporting how much money they made in the last three months. And here to help explain is NPR's Jim Zarroli.

Hi, Jim.

JIM ZARROLI, BYLINE: Hi, Ari.

SHAPIRO: So we've heard from five of the biggest banks this week. What do their earnings tell us about how Americans are doing during the recession?

ZARROLI: You know, it's kind of a tale of two economies. You have banks like Goldman Sachs that make a lot of money from investment banking and trading. They did very well. Companies like Bank of America, Wells Fargo, which serve, you know, more regular households, didn't do as well. The banks are already seeing the pandemic recession take a bite out of their revenues.

You have this kind of strange dichotomy where people who have money are spending it on goods like furniture and autos. You know, auto loans are up because interest rates are so low. They're not spending it on services. They're not - you know, they're not going to restaurants and movie theaters, not going to gyms. They're not doing big-ticket items like traveling. And big banks, like Bank of America, like JPMorgan Chase, say they've seen a big drop-off in credit card use. People who have jobs and make money don't have anywhere to spend it because they can't go out because of the pandemic. A lot of other people aren't spending because they're not working.

SHAPIRO: So what's it going to take to turn this around, to improve the economy?

ZARROLI: Yeah. I mean, that's kind of the big question right now. I talked today to economist Jason Furman at Harvard. He was the chair of the Council of Economic Advisers under President Obama. And he says, you know, we've muddled through pretty well until now. We've regained half the jobs that we lost. Personal income has done OK. So in that sense, we're doing well. But he says when you look at the numbers like these, the worry is that, you know, we're looking in the rearview mirror.

JASON FURMAN: The unemployment insurance ended. The stimulus checks people got are a lifetime ago now. And going forward, there may be more of an air pocket developing in consumer spending and demand.

ZARROLI: And he thinks, like a lot of economists right now, that Congress needs to come up with another pandemic aid bill. And he says if it doesn't, you're going to see a lot more people over the next few months struggling to pay their bills, struggling to, you know, put food on the table.

SHAPIRO: Right now it doesn't look like Congress is going to pass anything anytime soon. How worried are banks about that?

ZARROLI: Oh, they're worried. Jamie Dimon, who is, of course, the chief executive of JPMorgan Chase, said yesterday there's a danger of a double-dip recession if there's not a bill. He says small businesses and unemployed people will face a lot of pain and suffering if there's no bill. All of the big banks are warning something like that. They're saying we could see the current downturn get a lot worse.

SHAPIRO: And would this be an existential threat for the banks themselves? I mean, how much trouble are they potentially in?

ZARROLI: I mean, it's not huge trouble. This is an important issue because, you know, if you remember, one of the reasons it took so long to get out of the Great Recession was because the banks had been so badly hurt. They made a lot of bad loans. You know, remember all those people who couldn't pay their mortgages. This time, of course, things aren't that bad. The banks have had to set aside billions of dollars to cover bad loans. But this week, most of them say they're having to set aside less money than they thought. So the numbers are better than we feared. But, of course, if the recession gets worse, that could very quickly change.

SHAPIRO: That's NPR's Jim Zarroli.

Thanks, Jim.

ZARROLI: You're welcome.

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