How American banks are responding to rising interest rates

expected the Federal Reserve to raise interest rates to just 0.75% by the end of the year. E dramatically since: by late June markets were expecting rates to hit 3.5% by the end of 2022. This change in expectations is far bigger than the actual move in interest rates, which have climbed by 1.5 percentage points. The impact of this duality—that expectations have leapt while reality has only hopped—was plain to see on July 14th, 15th and 18th as America’s six largest banks, Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo, reported earnings for the second quarter.The activities of the lenders that run on expectations—conducted by the slick investment bankers who advise on big corporate investments, like mergers and acquisitions, and help firms go public or issue debt—had a tumultuous quarter. Investment-banking revenues plunged by 41%, year on year, at Goldman, by 61% at JPMorgan and by 55% at Morgan Stanley. Investment bankers who underwrite loans for deals have had a particularly rough time. All banks took losses on their “bridge books”, the portfolios of loans they have yet to sell to investors but have agreed to issue for or mergers. These write-downs added up to more than $1bn in losses across the big banks.