Bank of America’s stock price in July last year was still $25. It was above 30 for most the first quarter.
In those days nobody seriously talked about a Geithner put on Bank of America. Certainly the average Bank of America depositor did not think about the FDIC guarantee.
Both those quarters were record revenue quarters (other than trading revenue).
The Geithner put does not explain the rising margin of Bank of America in those quarters.
Bank revenue has been rising fast across the board since the first glimmers of the subprime crisis. It has happened even in parts of the bank that are not guaranteed.
It is a global phenomenon. Well except in Japan.
It is not surprising at all. The margin collapsed when money was freely available and banks were grovelling to lend money.
Now banks are able to (a) tighten credit standards, (b) raise rates and (c) have customers come begging.
Banks have the upper hand when dealing with loan customers and it shows in their numbers.
Once banks wined and dined potential customers. Now potential customers wine and dine bankers.
Bank revenue is rising. It is rising faster when governments guarantee their funding – but it is nonetheless rising pretty well across the board. The explanation for that rise is at best in part taxpayer subsidies. But that is not the only explanation. The competitive dynamics are far more important in explaining why revenue should rise.
Why is it that people have given up believing that competition is the main determinant of margins?