The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Stephen Gandel

NEW YORK, July 14 (Reuters Breakingviews) - The nation’s largest banks are gorging on risks and rewards. A slew of second-quarter results unveiled on Tuesday showed major U.S. lenders reaping the bounties of blockbuster IPOs like SpaceX SPCX.O and volatile markets. Yet while earnings rose 41% year-over-year at JPMorgan JPM.N, income from consumer banking climbed just 3%. The so-called universal banks, stretching from neighborhood teller windows to Wall Street’s most complex trades, are changing. Their growing reliance on highly profitable but riskier areas may lead to greater fragility.

The shift has been building for years. Regulations instituted after the 2008 financial crisis helped non-bank lenders take a larger role in credit markets. In response, traditional financial titans increasingly redirected resources to investment banking and trading. A burst of IPO underwriting and trading activity during the pandemic era accelerated the trend.

JPMorgan boss Jamie Dimon has now allocated $175 billion of capital to investment banking and markets, up from $80 billion at the end of 2019. Assets in the firm’s trading operations surpassed $1 trillion for the first time this year. Bank of America BAC.N has increased the capital dedicated to its trading unit to nearly $54 billion from $38 billion five years ago.

For now, the strategy is paying off. SpaceX’s public debut could set the stage for more big deals. Geopolitical uncertainty and the rise of artificial intelligence are keeping markets active, whether through jolts of volatility or efforts to raise mind-bogglingly huge sums to plow into data centers and the like. JPMorgan’s investment banking fees rose 45% in the quarter, while equity trading revenue jumped 86%.

The danger is that post-crisis regulations are still primarily focused on lending and credit exposure. Trading assets, even riskier ones, often carry lower capital requirements than traditional loans. Basel III’s endgame rules address some of that by requiring banks to hold more capital against operational hazards associated with large trading desks and payment businesses. But banks continue to fight such changes tooth and nail.

Another concern is that Wall Street is converging on the same model. Even Wells Fargo WFC.N, long a relative holdout, reported massive gains in investment-banking and stock-trading revenue, up 36% and 64% year-over-year, respectively.

Rising tides of dealmaking and market volatility can lift all banks. But the more alike they become, the greater the chance they sink together.

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CONTEXT NEWS

Five of the six largest U.S. banks reported results for the second quarter on July 14.

Earnings at Goldman Sachs rose 78% from a year ago to $6.6 billion in three months to June 30. Citigroup, JPMorgan, Bank of America, and Wells Fargo reported increases of 45%, 40%, 26% and 17%, respectively.