Big banks have nothing to fear from a recession in 2023. They are in better shape than they were ten years ago, with large reserves against borrowers and numerous regulators requiring them to be honest. However, next year the large profits of the US credit institutions will be mercilessly eaten away by the rising costs coming from a variety of directions. It looks less like a bear attack and more like an ant invasion. JPMorgan, Bank of America, Wells Fargo and Citigroup report fourth-quarter earnings on Friday.

The good news is that, in the coming year, higher interest rates, combined with a stronger loan portfolio, will largely offset lower investment banking fees. JPMorgan’s net interest income could reach $75 billion in 2023, up $22 billion from 2021, before the Federal Reserve starts raising interest rates, Jeffreys said. Bank of America could reach $60 billion, up $17 billion in two years.

So while the economy may be slowing down, the banks are doing just fine. The problem is that there are many people who directly or indirectly claim a share of their windfall. These include customers, regulators and, most importantly, employees. Earnings per share for all four banks for the fourth quarter will be lower than a year earlier, analysts say. According to Refinitiv data, the average valuation of US banks is 1.2 times their estimated book value, which is probably the best estimate possible. Depositors are the pioneers of the “peak-raid” of bank profits. After several years of insignificant interest on their accounts, deposit rates are rising. This manifests itself in a metric known as deposit beta, the proportion of an interest rate increase that is passed on to consumers. In previous cycles, the beta on deposits has been around 50%, which means that a two percentage point increase in Federal Reserve interest rates will result in a one percentage point increase in the rate that depositors receive. But betas are currently less than half that historical level across most banking groups. The interest paid is about one-sixth of JPMorgan and Bank of America’s expenses and a quarter of Citi’s.

Banks will try to reduce these figures. They’re full of post-coronavirus deposits, meaning there’s less competitive pressure to lure their competitors’ customers with generous savings account interest rates. Banks such as US Bancorp and Regions Financial say the beta could hit around 30% this time around. But the pressure could mount, and no bank wants customers to leave in droves. Online deposit rates are approaching 3%.

In addition to savers, regulators are interested in profit margins. Rules that went into effect in early 2020 force banks to take on the responsibility of covering bad debts when the outlook is bleak, even when borrowers are still struggling to get back on their feet.

Loan loss allowances could almost double year-over-year in 2023, according to Wells Fargo analysts, reducing the industry’s net interest income by about 10%.