LINDA WERTHEIMER, host:
It's been a long time since we could say this, but this past week was a pretty good one for the nation's banks. One of the largest banks, Wells Fargo, said it made a lot more money than it expected to during the first three months of the year. Bank stocks, which have been in the basement for a long time, actually finished the week higher.
NPR's Jim Zarroli joins me now. Jim, hi.
JIM ZARROLI: Hi, Linda.
WERTHEIMER: Do analysts think this is a sign that banks are out of the woods?
ZARROLI: Well, I think for the most part they don't go quite that far. I think they would say we, you know, we got some good news. It's encouraging. We had Wells Fargo saying it made $3 billion during the first quarter. And even by today's standards that's a lot of money. There was also a piece in The New York Times about the stress tests that federal regulators are running to find out the condition of the biggest banks. And it's more - seems to be more about kind of giving them a government seal of approval, so people will feel safe investing in them.
But The Times said, you know, all the big banks that took the stress test will pass it. So that was encouraging, too. Some interesting signs, you know, if it keeps up, we're all going to be kicking ourselves, eventually saying, you know, remember when we could've bought Citigroup for a dollar a share? But having said that, the banks still face some very big problems. They're not out of the woods yet.
WERTHEIMER: But how big can the problems be if banks like Wells Fargo are making money?
ZARROLI: Well, Wells Fargo was always one of the banks that was doing a bit better than the others. I think most analysts would say that the banks still have a lot of fundamental problems: big losses in credit cards, big losses in real estate, corporate loans. Then there are these questions about these toxic assets that a lot of financial companies still have on their balance sheets, but, you know, still - we got some definite signs of a spring thaw.
WERTHEIMER: What about thaws for consumers? If banks like Wells Fargo are making money, does that mean that consumers will be able to get credit more easily?
ZARROLI: Well, you know, if banks are losing money, they can't lend. So in that sense this is a positive development. You have to keep in mind that much of the consumer lending that goes on isn't really done directly by banks. I mean, you might go to a bank to get a student loan or a, you know, a mortgage or a credit card, but the bank usually resells it into the securitization market. It bundles the debt, packages it as a security and then sells it to investors - usually pension funds or mutual funds.
Well, this securitization market is just - it's dead right now. No one wants to buy securities. So the money that the banks lend out tends to be their own money, and they are much more careful about how they lend it, who they lend it to. So, you know, until the securitization market improves, lending isn't going to get back to where it was two years ago. And, you know, and it may never get back there.
WERTHEIMER: Jim, when will we know for sure that these signs and portents are not some kind of false spring - that the banking sector is really recovering?
ZARROLI: This week we are going to hear from three big banks about their first quarter earnings: Bank of America, JP Morgan Chase, Citigroup. Citigroup and Bank of America especially have been struggling because of these toxic assets. They've already come out and said, you know, they think they did better than expected during the first quarter. But I don't think this is going to be something that turns around overnight, except perhaps in the stock market, where investors have been known to overreact sometimes.
WERTHEIMER: So two, or three or four quarters of good news before we really say we're recovering, we're doing all right?
ZARROLI: Yeah. I think we'll know it when lending has reached the, you know, levels that approach what we were at before. I mean, I think we'll feel it then. And that's really important for the economy as a whole, because the problems in the banking sector and the effect that they've had on lending - consumer lending, corporate lending - are really at the center of the recession we're in.
We are having a lot of these problems because of just an erosion of confidence in the banks. And when we start to feel more secure about the banks, then we will feel as though the economy is really beginning to improve.
WERTHEIMER: NPR's Jim Zarroli reporting from New York. Jim, thank you.
ZARROLI: You're welcome.
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