That's the paradox in the market right now.

Banks have a capital base - proprietary liquid assets that they provide to consumers at profitable rates. The Fed, to an extent, controls the "supply of money" in a variety of ways.

Right now, spiking default rates have led to a sharp diminishing of bank capital bases. At the same time, the Fed is racing this evaporation of liquidity - and losing. More capital is being put under mattresses than to work.

ADismalScience

Legit question... I really want to understand.

Chad LaFarge

The last sentence is my point

Let me reiterate: banks profit by providing liquidity to capital markets. Lower profits are a strong indicator that lending is contracting, which means fewer can access capital.

What's curious is the fact that this is occurring in a period of cheaper money for banks, who borrow much of the money they lend to consumers/industry from the Fed or capitalize it from investors. Capital writedowns have more than offset the liquidity gained from capital created by the Fed's drastic action to provide cash to the markets, which resulted in less money to lend and consequently fewer profits.

ADismalScience

Mr. Gunn

Film at 11.

m4ximusprim3

"The industry as a whole is coming off a golden period of record profits. Because of this financial strength, the overwhelming majority of banks and thrifts remain well-capitalized and profitable," Bair said.

This is notable because they're not saying that they're losing money, just that they aren't making the kind of record profits to which they've grown accustomed.

Chad LaFarge

darkened

disavow

econobiker

You need to learn the difference between "earnings" and "profit".

bustit22

Nick Douglas

I have no idea what my credit card rates are. Don't care, really, as I never pay interest. I also pay no ATM fees (bank doesn't charge any, and they reimburse any "3rd party" fees). And they pay me 3% interest on my checking acc't balance. Credit union? Nope. Fidelity.

JustAGuy2

Since the first day they were started? Hate to break it to you, but Citibank doesn't exist because they love you.

JustAGuy2

deadlizard

sue_me

In other words, they make cash and investment property available to clients that would be unable to access it normally. Credit revolutionized this country's infrastructure when, for example, the payment plan on the Model T was introduced. And in case you're the total Internet Obama fans I think you are, credit is the only feasible way to continue to subsidize social welfare spending for health care or social security that doesn't involve privatization. Or just simply denying service.

Lower bank profits - and the consequent lower capitalization at banks - is, largely, bad for consumers who love credit. Virtually all consumers lover credit, so this is bad for virtually all consumers.

Zero % for a year on that flatscreen? Good luck.

Good rate on that mortgage? Not likely.

Cheap bond float on that school system or infrastructure project? Nuh-uh.

Profitable banks mean a lubricated economy, which is good for everyone.

ADismalScience

stevegoz

aaron8301

stevegoz

Join a credit union and screw banks.

taka2k7

rdldr1

ivanthemute

pinkfreud

azntg

shadow735

rainmkr

kenblakely

adamondi

stevegoz

TechnoDestructo

Now the bar has been raised higher for me to be happy with what i earn each year..... bastards....

socalrob

chrisbacke

pinkfreud

Profits might not be as high as they were, but I'm sure 99.9% of banks are still making a decent amount of money.

dandd

Tank

Commercial banks and savings institutions insured by the FDIC reported net income of $105.5 billion in 2007, a decline of $39.8 billion, or 27.4% from the record $145.2 billion that the industry earned in 2006.

Cry me a river. Poor poor banks indeed...

scoobydoo

*rolls eyes*

NightSteel