No End to Financing America’s Major Financial Institutions
Published in Nikkei
(Japan) on 24 October 2011
by Editorial (link to original)
Wall Street, which has played the role of circulating necessary funds for growth in the global economy, has not been able to find a new form of money-lending since the collapse of Lehman Brothers. This kind of worry was often reflected in America’s financial institutions between July and September of this year.
Goldman Sachs was in the red for the first time in three years during that quarter. On top of the bond market being in stagnation, which was a significant source of revenue, there were large losses in private equity investments. The loss of profits with these types of transactions is the result not only of temporary changes in market prices, but also due to the influence of tightened restrictions.
With last year’s financial regulatory reform, financial institutions were forbidden from self-trading. In dealing with the regulations, major financial institutions, beginning with Goldman, have drastically reduced their self-trading divisions.
It was the desirable outcome from the perspective of protecting against another crisis. However, the real economy may be influenced as it seems that the major U.S. financial institutions, which have sent large quantities of risk money into the economy, are shrinking and seem unable to pull out of their situation.
The headwinds are not stopping against comprehensive financial institutions that operate securities and commercial banks simultaneously. Losses on loans that are targeted for corporations are tending to shrink, but the persistently high unemployment level makes it difficult for businesses that target individuals to make a profit.
At the end of September, Bank of America’s total assets were $2.22 trillion, down 5 percent from last year, passing the baton to JPMorgan Chase & Co., whose $2.29 trillion in assets is the largest in America. This is the result of consolidating assets, in which losses were dealt with under the umbrella of the major mortgage companies.
The U.S. Federal Reserve Board has introduced a twist to increase the share of long-term national bonds without changing the scope of their assets. It aims to stimulate the economy by urging the lowering of the long-term interest rate, but the problem is that the profit margin of financing thins out over time due to the reduction of the variable interest rates for the bank.
When not only Europe’s, but also America’s financial system causes adverse conditions, the world’s economy cannot escape the negative influence. It will be necessary to keep a watchful eye on the structure of American finances.
Goldman Sachs was in the red for the first time in three years during that quarter. On top of the bond market being in stagnation, which was a significant source of revenue, there were large losses in private equity investments. The loss of profits with these types of transactions is the result not only of temporary changes in market prices, but also due to the influence of tightened restrictions.
With last year’s financial regulatory reform, financial institutions were forbidden from self-trading. In dealing with the regulations, major financial institutions, beginning with Goldman, have drastically reduced their self-trading divisions.
It was the desirable outcome from the perspective of protecting against another crisis. However, the real economy may be influenced as it seems that the major U.S. financial institutions, which have sent large quantities of risk money into the economy, are shrinking and seem unable to pull out of their situation.
The headwinds are not stopping against comprehensive financial institutions that operate securities and commercial banks simultaneously. Losses on loans that are targeted for corporations are tending to shrink, but the persistently high unemployment level makes it difficult for businesses that target individuals to make a profit.
At the end of September, Bank of America’s total assets were $2.22 trillion, down 5 percent from last year, passing the baton to JPMorgan Chase & Co., whose $2.29 trillion in assets is the largest in America. This is the result of consolidating assets, in which losses were dealt with under the umbrella of the major mortgage companies.
The U.S. Federal Reserve Board has introduced a twist to increase the share of long-term national bonds without changing the scope of their assets. It aims to stimulate the economy by urging the lowering of the long-term interest rate, but the problem is that the profit margin of financing thins out over time due to the reduction of the variable interest rates for the bank.
When not only Europe’s, but also America’s financial system causes adverse conditions, the world’s economy cannot escape the negative influence. It will be necessary to keep a watchful eye on the structure of American finances.