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Consumers step up for the Fed

The Fed is not expected to contribute much in 2016 to banks' margins. Instead, consumers deposits are filling in.

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Wall Street banks have an unlikely ally channeling cash to their balance sheets at a crucial time: the American consumer.

When the biggest consumer banks in the U.S. began 2016, it was with rosy optimism that the Federal Reserve would raise interest rates two, three, even four times. But a turbulent start to the year dashed those hopes.

U.S. consumer deposits are on the rise, banks JPMorgan Chase, Wells Fargo and Bank of America reported separately over the last two days in their first-quarter earnings. Although a mere 0.25 percentage point is not all of what Wall Street banks were hoping for, they're still able to reap hundreds of millions in interest payments on what they've got stashed at the Fed. Recent sharp increases in deposits made by consumers only help pad that total.

JPMorgan reported in its earnings Wednesday its largest-ever year-over-year increase in consumer deposits of roughly $40 billion, or a rise of nearly 10 percent.

"We've made some significant investments in the business over the last five years," said Barry Sommers, CEO of JPMorgan's consumer bank. "We've made investments from a technology standpoint; we put the customer first."

Growing consumer deposits at big banks are coming at a crucial time. Before the Fed raised interest rates a quarter point in mid-December 2015, deposits were earning about 0.3 percent, according to JPMorgan's report Wednesday.

After the central bank's rate hike, that figure grew to a half-percent in the first quarter. It may not seem like much, but a few basis points add up fast on bank balance sheets.

"JPMorgan made an extra $400 million in revenue on a 25 basis point increase," said Erik Oja, S&P Global Market Intelligence banking analyst. "The rate increase on Dec. 16 puts a lot of money into revenue and margins."

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To be sure, consumer banks would overwhelmingly prefer that the Fed keep raising interest rates, which would drive billions more to the balance sheets of Wall Street firms that gain interest on their deposits held at the central bank. But in the interim, tens of billions of dollars' worth of inflows to consumer accounts should do just fine.

Both Bank of America and Wells Fargo, which reported results Thursday, noted growth in consumer deposits, which helped drive up total deposits as well.

BofA said in its earnings report that consumer deposits rose more than $42 billion, outpacing wealth and investment management and global banking. Consumer deposits grew year over year from $549 billion in 2015's first quarter to $592 billion in the first quarter of this year, an increase of nearly 8 percent. The bank reported total deposits rose 6 percent to more than $1.2 trillion in the first quarter.

Net interest income increased at Bank of America, from $4.872 billion in the first quarter of 2015 to $5.185 billion, a rise of more than 6 percent.

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Wells Fargo also reported a 4 percent gain in average deposits, which rose to $1.2 trillion in the first quarter. Despite reporting a lower net interest margin of 2.9 percent, net interest income rose 6 percent, or $681 million, year over year.