"Earnings Data Indicate Mixed Results For Banks"

RENEE MONTAGNE, host:

And the nation's biggest banks have been reporting quarterly profits. Some of the numbers have been impressive. With the economy now growing, we wanted to find out if banks, that would be the lifeblood of an economy, have put the recession behind them.

So we called David Wessel. He's economics editor of The Wall Street Journal, a regular guest on MORNING EDITION. He joins us now. Good morning.

Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning, Renee.

MONTAGNE: Now Bank of America, the country's biggest bank, reported losses. But other big banks like JP Morgan, Citigroup, they made billions of dollars last year. What's the general picture then, for the banking industry?

Mr. WESSEL: Well, I think you'd have to say it's mixed. Most of the banks are doing better for sure. Citibank, which was a poster child of the bailout of troubled banks, managed to turn a profit in 2010 after two years of losses. Morgan Stanley had a good quarter. Goldman Sachs not so good. As you point out though, Bank of America lost $2.2 billion in 2010, and like some other banks, they are now coping with demand from private investors and from the government's Fannie Mae and Freddie Mac, that the bank take back bad mortgages that they made because they didn't dot the I's and cross the T's.

And then there are the smaller banks which are not nearly so healthy. As of Friday another seven small banks have been closed by the Federal Deposit Insurance Corporation, and that's on top of the 157 that were closed last year. So the small banks with a lot of commercial real estate loans are still not out of the woods.

MONTAGNE: Okay. Not out of the woods, but many banks are still healthier. Are they lending more these days?

Mr. WESSEL: Yes. That's the good news. The banks are beginning to lend more. The total amount of commercial and industrial business loans is up, led by the 25 biggest banks, the banks that Americans love to hate. But now that they are strong they're lending a little bit more. J.P. Morgan Chase, one of the big ones, says that its total loans increased six percent since the end of September.

Now while most of that growth is coming from loans to businesses, they say that credit card usage is up, 10 percent year over year. And consumer borrowing of all sorts is up a little bit. But none of this lending is near where we were before the recession. Banks have raised the bar for loans, and while they aren't ratcheting it higher, they aren't lowering it. They aren't getting more generous either.

MONTAGNE: And let's remember that they are new financial regulations. How are they affecting banks?

Mr. WESSEL: Well, they are beginning to affect them quite a bit. They're squeezing the fees banks can charge on debit cards. Regulators are fine-tuning what's known as the Volcker Rule, which says that if you want to be in the lending business you can't be doing a lot of investing for your own pocket, so banks have been pruning some of their trading operations. And the banks that make a lot of money in what's trading what's known as derivatives or bracing for rules that will force a lot of that business on to what's known as clearing houses, well, they'll be able to make less profit. And so we're beginning to see this. The new consumer agency is just beginning to get off the ground. So it's beginning to change the way they do business. But until they see the final rules we won't see how big the effect will be.

MONTAGNE: Now David, let's turn to bankers and their salaries, always of great interest to people like me out here. How are they doing?

Mr. WESSEL: Well, you know, once again, the bankers are doing pretty well. The CEO of Citibank, which took, who took only a dollar a year for the past couple of years, will get 1.75 million this year. Executives at J.P. Morgan Chase got 10 percent bigger stock grants for 2010. At Morgan Stanley for instance, the average worker paycheck, this is the high guys and the low guys averaged together, went up about eight percent last year to about $257,000 per employee.

But some of the banks, Morgan Stanley for instance, in anticipation of new bonus rules, are saying the bonuses we give you won't be able to get for three to five years. This was a change made because of the crisis so that if the things fall apart later you won't get the whole bonus.

MONTAGNE: And in the few seconds we have, a sort of big question for you. Federal Reserve officials are meeting this week. Do you have a sense of what their thinking is on the economy and whether they'll take any action on for instance interest rates?

Mr. WESSEL: Basically the Fed is pleased with the recent signs of strength in the U.S. economy, but most of them don't think the economy is ready to fly on its own. They're going to keep interest rates at zero where they've been for 25 months. For most of this year they're going to finishing buying the $600 billion worth of long-term treasuries that they agreed to buy in order to lower long-term interest rates.

They're beginning to take notice of the fact that although there's no inflation here, it's picking up overseas. Indeed, in today's Wall Street Journal we have an interview with the head of the European Central Bank who is worried about food, oil and raw material prices going up.

MONTAGNE: David Wessel is economics editor for The Wall Street Journal.

Thanks very much.

Mr. WESSEL: You're welcome.