Inflation and investment banks

In prolonged inflation, how do you think investment banks will fare, and why?

How about regular banks, and why?

Any other comments?

Thank you.

 

??

Ask yourself this simple question : what causes inflation in the first place?

 

They'll be fine. They're inner circle, and will be well cared for.

 

Investment banks are dealers -- which means they issue securities on behalf of other firms, bespoke contracts, and such. Their business is volume driven -- so if volatility creeps up, then their trading activities will rise. But if it's just inflation, net impact would be flat. For context, take a look at guidance released by some of the major bulge brackets (JPM and C) noting that their trading revenue will be lower than expected this quarter (even though inflation is "high").

Regular banks (that make money through lending) will probably see earnings rise as net interest margin picks up. This is because higher inflation will cause interest rates to rise in the mid-to-long term (e.g. 10-year yield should rise with inflation). Banks make more money when interest rates are rising because the spread between what they pay customers and what they charge on their loans is wider.

 

Thank you for your well thought out reply.

 

Nothing is going to happen to them. At least I believe that.

 

Thank you for your reply.

Yes, what you are getting at is a big consideration.

Another is opportunity cost of an investment.

 

Thanks for sharing