US Bank Earnings Rely Heavily on Volatile Trading Revenue

Major US banks reported robust second-quarter earnings, with headlines dominated by record highs in trading and investment banking. However, a closer examination of the financial data reveals that core banking activities, such as lending and deposit-based income, grew at a much slower pace. The disparity between volatile capital markets performance and recurring revenue streams is the defining feature of this reporting cycle.

According to analysis from GN markets/earnings (en-US), the strong top-line results at institutions like JPMorgan Chase, Bank of America, Morgan Stanley, and Goldman Sachs were disproportionately driven by one-off gains and market-specific revenues. This distinction is critical for understanding the underlying health of the banking sector, as the core business engines remain less dynamic than the headline figures suggest.

Capital Markets Drive Revenue Surge

JPMorgan Chase’s second-quarter revenue increased by 27% year-over-year, a figure inflated by significant one-off items. Excluding these exceptional gains, revenue growth settled at approximately 15%. Within the firm, markets revenue jumped 35%, with equities trading surging 86%. In contrast, net interest income excluding markets, a key indicator of core banking health, rose only 4% year-over-year. This divergence highlights that the spectacular headline quarter relies heavily on trading activity rather than traditional lending.

Similar patterns emerged across other major institutions. Bank of America saw total revenue rise 15% year-over-year, driven by a 33% increase in sales and trading revenue, which included a 70% jump in equities. Global Markets pre-tax income climbed from $2.15 billion to $3.55 billion, while net interest income grew by 9%. Morgan Stanley reported a 27% increase in total net revenue, with Institutional Securities revenue expanding from $7.6 billion to $11.0 billion. Equities revenue at Morgan Stanley rose 69%, and investment banking fees increased 58%, outpacing the 14% growth seen in Wealth Management.

Goldman Sachs presented the most extreme version of this trend, with Global Banking and Markets revenue up 53% year-over-year. Equities revenue at the firm grew by 72%, Fixed Income, Currency, and Commodities (FICC) revenue rose 32%, and investment banking fees increased 55%. The concentration of growth in these specific areas underscores that the current earnings strength is tied to market conditions and deal flow, rather than broad-based expansion of the banking book.

Core Banking Growth Remains Modest

The reliance on capital markets for earnings growth raises questions about the sustainability of recent profit levels. While trading and investment banking revenues are highly sensitive to market volatility and deal cycles, net interest income represents the more stable, recurring portion of bank profitability. The fact that this core component is growing at a single-digit rate, or in some cases just 4%, suggests that the fundamental business model is not expanding as rapidly as the top-line numbers imply.

This structural imbalance means that the current earnings strength is heavily dependent on a benign market environment and a wave of deregulation that has provided tailwinds to trading activities. If market conditions shift or deal flow slows, the impact on overall bank profits would be more severe than if the growth had been driven by lending and deposit relationships. The distinction between volatile trading income and stable interest income is therefore a key metric for assessing bank health.

Regulatory Studies Question Bank Solvency

Recent studies from the Federal Reserve add a layer of complexity to the narrative of bank strength. One study concluded that post-Great Financial Crisis prudential reforms have not significantly reduced solvency risk for large banks. It found that these institutions have not achieved materially lower solvency risk over time or relative to smaller banks. Furthermore, deposit-funding risk at larger banks has risen as they have increased their reliance on uninsured deposits, which can be more volatile and expensive to replace.

A second Federal Reserve study examined 465 failed banks between 1997 and 2025, finding that economic capital is a more accurate predictor of bank failures than other solvency metrics. The study suggested that large US banks have weaker economic capital compared to 2007 levels. These findings contrast with public perception, which generally holds that larger banks are in a much better financial position than they were before the crisis. The data indicates that while earnings are strong, the underlying capital buffers may not be as robust as previously believed.