When Congress passed the White House-backed tax reform legislation late last year, we at BankMarketingCenter.com tried to strike a positive chord, pointing to community banks that had increased wages and bonuses for employees.
Now, six months after the historic cuts, it appears the cuts have caused bank profits to increase to levels not seen in the past 20 years, at least for the big mules of Wall Street banking.
The Washington Post cited a FDIC report – the regulator’s quarterly report on the state of American banking – that showed a 27.5 percent increase in first quarter net income. Aggregate income totaled $56 billion in the first three months of the year. Without the tax cuts, that increase would have been cut in half.
But two things are important to note here: the Big Six banks were the primary beneficiaries of the tax cuts, according to the Associated Press.
“The nation’s six big Wall Street banks posted record, or near record profits in the first quarter,” the AP’s Ken Sweet reported. “While higher interest rates allowed banks to earn more from lending in the first quarter, the main boost for banks came from the billions of dollars they saved under the tax law Trump signed in December (2017). Combined, the six banks saved at least $3.59 billion last quarter, according to an Associated Press estimate, using the bank’s tax rates going back to 2015.”
That figure translates to $40 million per day for the Big Six, $27,700 a minute, or $462 per second.
For your individual bank customer, the return is a flat $11 per person, or $28 per household. In fairness, the reform package was projected to save an average of $1,600 per household. However, according to the Tax Policy Institute, most middle-class households were expected to save only $900, the Post reported.
Sadly for Republicans, as the Post noted, banks can’t vote. But their PACs can contribute to campaigns as the 2018 midterm elections – and the 2020 presidential vote — loom.
Just as a refresher, let’s look back at some of the actions announced by some smaller banks in the wake of the tax-slashing legislation:
- Minneapolis-based US Bancorp gave each of its 60,000 employees a $1,000 bonus and increased the minimum wage to $15 an hour. The bank also pledged to improve its employee health coverage and improve its digital and mobile banking capabilities. The firm also pledged to contribute $150 million to its charitable arm, the US Bank Foundation;
- Dallas-based Comerica also gave a $1,000 bonus and a boost in the minimum wage to its employees;
- Bank of the James, a Lynchburg, Va.,-based institution, agreed to boost the minimum wage for its employees with one or more years of service to $15 an hour, as well as boost its charitable giving;
- And last, First Farmers Bank of Converse, Ind., boosted its minimum wage by $2.50 an hour, and gave employees a $750 bonus at the end of 2017. The bank also pledged to invest $250,000 annually in community development and $150,000 annually on employee development.
While it is likely that community banks have benefited from higher interest rates, it would be interesting to quantify how much smaller institutions have seen their bottom lines boosted in comparison to their much larger Wall Street brothers.
And while it’s still early and the verdict is out on how higher tariffs on agricultural products and steel will impact not only the overall economy, but farm loans, car loans, etc., those protectionist moves by the Trump administration may in the long term hurt community banks.
While Wall Street basks in booming profits, those of us on Main Street will hold our collective breath and watch, hoping the optimism we felt six months ago still holds.
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