JP Morgan moved closer to becoming the world's first $1 trillion bank after strong trading and investment-banking results lifted Wall Street earnings. The same week, the European Commission outlined plans to unlock trapped bank liquidity to strengthen the competitiveness of Europe's banking sector. In Asia, the Bank of Korea resumed monetary tightening after more than three years, while China sought to improve credit transmission amid weak loan demand and Indonesia reviewed liquidity distribution following shifts in government deposits. Read more on the week's key developments: 1. JP Morgan posts record $21.2 billion profit as markets revenue surges JP Morgan Chase reported a record second-quarter profit of $21.2 billion on 14 July, or $16.9 billion excluding gains from Visa shares and other equity investments. Its shares rose nearly 3% after the results, lifting its market capitalisation above $920 billion and moving it closer to becoming the world’s first $1 trillion bank. Managed revenue reached $58.0 billion, while markets revenue increased 35%, driven by an 86% surge in equities trading, and investment-banking fees rose 30%. Average loans and deposits grew 10% and 7%, respectively. Bank of America also benefited from stronger investment-banking activity and stabilising net interest income, while Citigroup’s restructuring improved performance, supported by transaction banking and securities services. Wells Fargo remained more exposed to softer net interest income. The results underline how diversified fee-based businesses are cushioning earnings as the benefits of higher interest rates begin to fade. 2. US inflation falls to 3.5%, reducing expectations of another Fed rate increase US consumer inflation slowed more than expected in June, easing pressure on the Federal Reserve to raise interest rates again. Data released by the Bureau of Labor Statistics on 14 July showed the Consumer Price Index fell 0.4% month on month after rising 0.5% in May, bringing annual inflation down to 3.5% from 4.2%. Core inflation was unchanged on the month and slowed to 2.6% year on year, while a 5.7% decline in energy prices accounted for much of the drop in headline inflation. Futures markets sharply reduced the implied probability of a July rate increase following the release. The data reduced pressure for another immediate rate increase but is unlikely to settle whether inflation is returning sustainably to the Federal Reserve's 2% target. Testifying before the House Financial Services Committee later the same day, Federal Reserve Chair Kevin Warsh said policymakers would continue to assess incoming data before making further policy decisions. 3. Bank of England warns repo funding could amplify stress in UK gilt market The Bank of England on 17 July published further analysis strengthening the case for reforms to the gilt repo market, warning that funding conditions could tighten sharply during periods of stress. Around half of bilateral gilt repo transactions currently carry zero haircuts, while hedge funds accounted for about 60% of UK government bond trading during January and February 2026, up from 53% at the end of 2023. In its recent system-wide exploratory scenario, participating banks said they would roughly double repo haircuts under stress, illustrating how quickly funding could be withdrawn from leveraged market participants. The findings reinforce the Bank's concern that vulnerabilities have shifted beyond banks to market-based finance, where greater reliance on short-term repo funding could amplify future gilt-market shocks. The Bank argues that broader central clearing and more consistent collateral practices would reduce counterparty risk and make sterling funding markets more resilient. 4. EU outlines measures to unlock EUR 230 billion ($263.1 billion) of trapped bank liquidity The European Commission on 17 July outlined measures to ease restrictions on the movement of capital and liquidity within cross-border banking groups, arguing that national ring-fencing continues to undermine the EU's Banking Union. Citing European Central Bank estimates, the Commission said restrictions constrain the transferability of around EUR 230 billion ($263.1 billion) of high-quality liquid assets within banking groups, while the Association for Financial Markets in Europe (AFME) estimates fragmented rules immobilise a further EUR 225 billion ($257.4 billion) of capital. The proposals seek to revive the EU's long-stalled Banking Union by reducing national barriers to the movement of capital and liquidity. With direct cross-border lending accounting for only around 5% of EU corporate lending, legislation due in early 2027 will test whether member states are prepared to relax long-standing restrictions on intragroup capital and liquidity. 5. ECB selects payment service providers for digital euro pilot The European Central Bank on 14 July selected 36 payment service providers to participate in its digital euro pilot, marking the project's first large-scale pilot phase. Participants include BNP Paribas, Deutsche Bank, ING, Santander, CaixaBank and payment provider Worldline, which will work with 19 national central banks in a 12-month pilot beginning in the second half of 2027. The exercise will test digital euro payments involving consumers, merchants and public-sector entities under simulated live conditions. The pilot marks the ECB's first large-scale test of a retail central bank digital currency within Europe's existing payments ecosystem. The ECB said technical preparations will continue while it awaits European Union legislation authorising a digital euro. 6. FATF warns implementation gaps continue to expose virtual-asset ecosystem to illicit finance The Financial Action Task Force (FATF) on 16 July warned that many jurisdictions continue to fall short in implementing international standards for virtual assets and virtual asset service providers, leaving significant vulnerabilities to money laundering, terrorist financing and sanctions evasion. The report found supervisory and enforcement gaps persist across many jurisdictions despite the introduction of global standards in 2019. It also highlighted the growing use of stablecoins in illicit activity, citing Chainalysis estimates that stablecoins accounted for 84% of illicit virtual-asset transaction volume in 2025, underscoring how criminal activity continues to evolve alongside legitimate digital-asset markets. As stablecoins and tokenised financial infrastructure become more closely integrated with mainstream payments and capital markets, financial institutions can expect greater supervisory scrutiny of anti-money laundering controls, governance and cross-border compliance frameworks. 7. MPS says Intesa's EUR 30.6 billion ($34.9 billion) offer undervalues the bank Monte dei Paschi di Siena (MPS) said on 16 July that Intesa Sanpaolo's unsolicited cash-and-share offer valuing the lender at EUR 30.6 billion ($34.9 billion) undervalued the bank and disputed Intesa's assumptions supporting the proposed transaction, including EUR 2.9 billion ($3.3 billion) of projected annual pre-tax synergies. MPS said the offer represented a 12.5% premium to its undisturbed share price, compared with an average premium of about 30% in comparable Italian banking transactions. It also noted that the proposed combination would create one of Europe's largest banking groups, with around EUR 1.6 trillion ($1.8 trillion) in assets. The bid is the latest in a series of consolidation moves reshaping Italy's banking sector following years of restructuring and state intervention after the global financial crisis. The transaction is likely to influence how boards and investors assess future consolidation opportunities as European lenders seek greater scale to improve efficiency, strengthen profitability and compete more effectively. 8. Bank of Korea raises policy rate to 2.75%, first increase in more than three years The Bank of Korea on 16 July unanimously raised its base rate by 25 basis points to 2.75%, marking its first rate increase in three and a half years. The Monetary Policy Board said stronger export- and investment-led growth, persistent inflation above target and continuing financial stability risks justified tighter monetary policy. The Bank also cited elevated household debt, rising housing prices and foreign-exchange volatility as reasons for the move, while raising the rate on its Bank Intermediated Lending Support Facility to 1.25%. The decision marks a clear shift towards tighter monetary policy after an extended period of unchanged rates, reflecting confidence that the semiconductor-led recovery can withstand higher borrowing costs. It also highlights the Bank's willingness to prioritise inflation and financial stability despite an uncertain external environment. 9. China targets credit transmission as weak loan demand persists China's economy expanded 4.3% year on year in the second quarter, its slowest pace in more than three years, as weak domestic demand and the prolonged property downturn continued to weigh on credit demand despite resilient exports and industrial production. Regulators reportedly instructed some banks not to conduct bill re-discounting below 0.5% after rates briefly fell to 0.01%, highlighting banks’ use of bill financing to meet lending targets as demand for conventional corporate loans remained weak. Markets nevertheless expected benchmark lending rates to remain unchanged at the 21 July Loan Prime Rate fixing. The intervention suggests policymakers are prioritising credit transmission over further monetary easing. With liquidity already abundant, the challenge has shifted from supplying funding to ensuring it reaches households and businesses rather than circulating within money markets. 10. Bank Indonesia reviews liquidity distribution after interbank rate falls Bank Indonesia on 17 July said it was reviewing the distribution of banking liquidity after the overnight interbank rate (INDONIA) fell to 6.17% on 16 July from 6.62% in June, following shifts in government deposits between Bank Indonesia and state-owned banks that affected liquidity conditions. The central bank said it was engaging with banks to identify obstacles to liquidity distribution after raising its policy rate by a cumulative 100 basis points this year to 5.75% to support the rupiah. The review highlights the tension between maintaining tight monetary conditions to stabilise the currency and ensuring that liquidity circulates effectively through the banking system. With the rupiah under pressure, Bank Indonesia has limited room to ease policy, making more efficient liquidity distribution increasingly important for sustaining credit growth. What to watch ECB's rate decision (23 July), the Federal Reserve's FOMC meeting (28 to 29 July), the Bank of Japan's policy meeting (30-31 July), Japanese banks’ Q1 fiscal earnings (July 31-August 3), Singapore banks’ Q2 earnings (6-7 August), Malaysian banks’ Q2 earnings (26-28 August) The Asian Banker Weekly Brief is a roundup of the biggest macroeconomic, industry and regulatory developments affecting banking globally.
