How JPMorgan’s Cash Call Beat Bank of America

When the Federal Reserve flooded the economy with cash during the Covid-19 pandemic it exacerbated a problem for America’s largest banks: What to do with all the extra deposits.

Now that interest rates are set to fall four years later, the payoffs from the differing approaches at JPMorgan Chase & Co. and Bank of America Corp. are abundantly clear: The former’s choice to keep spare cash in money markets or at the Fed turned out to be the much more lucrative strategy than investing in bonds.

The lesson is to keep your options open in the face of great uncertainty, although it would be wrong to criticize Bank of America too harshly: There has been little opportunity to lend into the economy instead and Bank of America’s choices about what to do with all that money were similar to the rest of the sector. JPMorgan stands out more from the crowd. Today, the good news for the economy is that both still have abundant resources to meet demand for credit when it returns.

To see what happened, look at net interest income, which is the revenue banks earn from loans, money markets and bonds after paying depositors and other interest costs. JPMorgan’s NII in the first quarter of this year was 60% higher than the quarterly revenue it earned before the pandemic. Bank of America’s NII was just 12% higher.

JP morgan revenue

That gap is much greater than the difference in the deposit growth at each bank: Bank of America still had 41% more deposits at the end of the first quarter this year than at the start of 2019, while JPMorgan had 65% more. It did get some extra deposits and loans from its rescue of First Republic last year, but neither is enough to account for JPMorgan’s extra income.