US Banks Post Near-Record $40 Billion Profit

The banking industry reports positive second-quarter results.
5:36 | 08/12/14

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Transcript for US Banks Post Near-Record $40 Billion Profit
Okay. It is Tuesday August 12. The New York City financial markets are open at today's big number forty billion dollars that is how much profit US banks made -- most recent quarter. Is the industry's second highest profit total in some 23 years. But when I'm Dan -- where in New York's appear that he has put into context perspective -- humor from Yahoo! finance or us on this Tuesday morning. That Rick -- break -- numbers what's behind this windfall. Almost everything is going right for banks I say almost -- get to that in a minute but. They're making more loans they have better. Quality customers -- -- fewer defaults. Mortgage lending is coming back on -- lending has been really surging. And they're also benefiting from low interest rates there are able to lend money out. -- much higher rates than they pay. That they pay their depositors so they're doing pretty well on that spread. The one thing of course is not quite going and banks way yet. Is there are still dealing with lot with very. Unprecedented really penalties there is some of these settlements with the -- government dating back to -- the housing bubble and that recession that followed. But there are most of the banks are working through those two -- so they're basically putting all their problems behind them -- And getting back to business as usual. Not to be said a cynic on this but used to -- hadn't heard that as they put the caveat out there. -- is a sign though of an economic rebound or is this in fact an indication of just how banks in fact can maneuver their way through tough times. -- I'd say it's both of those things. You know if you can't if you can't make money as a bank these days you you used need to get out of the business night. Banks of course -- have been focused on super -- highly profitable things. You know double secret derivatives only five people understand in all these complex financial products. And the government has reined that in to some extent in yet banks are still profitable so I think that's telling us. You know the banks are complaining all this regulation oh my god we can barely. Earn a penny -- -- -- there actually earning quite a nice profit. And it in effect by. Going back to traditional banking so you know from the stocks are not. Surging the way you might expect. Because investors are used to sort of -- high flying model from a year from several years ago and they think banks I'd be doing better. But these are these are actually becoming healthy businesses. They're sort of contributing to the economy you -- the -- the way you want them to you want them lining lending money to businesses which they're doing. You want them lending money to consumers which they are. Doing to some extent and a little bit more as time goes on so the banks are kind of doing what we want them to -- these days. Is the ship to then and obviously trying to increase the quantity of the loan that's out there as opposed to the quality of the interest rate -- equality. Not in the positive sense but in the Jordan where it is obviously. Much more harmful for the consumer. It's obviously a balance about so. We had banks lending to just about anybody. In few years leading up to the financial meltdown -- 2008. That was obviously not a good thing because people took outlines they had no hope of paying -- -- you don't want that. But that there were these many many bad -- that -- that had defaulted basically in. The banks have worked out off those were a lot of mortgage foreclosures more mortgage foreclosures are now down to. Very healthy levels and also credit card defaults again healthy levels the -- area where we might see a bubble -- student loan. Debt and perhaps a little bit of bubble may be in auto landing. But -- are getting back to the point where the credit always pretty good. It's -- it's the way you want to CNN and the one thing that where we want to -- a bit more of that is in mortgage lending so standards have been very tight in mortgage lending. And let you know most economists say -- it would be great if the banks to loosen up. A little more there which they seem to be doing -- -- it's just a matter of time but again we're getting back to it sort of healthy. Banking and that doesn't mean it's gonna last but it might be at least a little pit stop on our way to whatever comes next for the back. This might -- a -- -- a philosophical question but how many more quarters and do we have to see -- for the industry to say -- I'm fact recovered from that housing crisis. Well the industry may never say that because of course they wind. They want the government to loosen up the new regulations so they can do some of the riskier. High profit stuff that there -- -- really not allowed to do these days but I think we're getting to the point we can say the banks have recovered Dan. I mean there a couple of exceptions for banks are still negotiating with the government -- and a big overhang. For years now is how much of the how liable these banks be. In both for private lawsuits. The united goes back to them selling security mortgage backed securities without. Declaring the risks inherent in these very risky mortgages. We're gonna see -- Big big settlement soon probably between Bank of America in the government. That that it will be the last sort of big settlement with one of the mega bags. And I think that will really. Who represented a turning point at which the banks. Can pretty much say we got we've got most of this behind us we'll still have a few lawsuits out there will have to deal it. But for the most part the big numbers are behind us and we can just get -- move on with the business as usual. And the big number today forty billion dollars -- record breaker for 23 years in the banking industry -- you're from Yahoo! finance on this Tuesday morning Rick thanks so much appreciate it again -- if of course you can keep up with latest headlines right journey abcnews.com. If -- -- in the big number I'm Dan Cutler in New York.

This transcript has been automatically generated and may not be 100% accurate.

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