By Matt Scuffham

NEW YORK (Reuters), Wall Street banks are among the most benefited by the huge Federal Reserve-fueled cash infusion into the financial market that sparked the trading boom of the pandemic-era.

Banks are poised to reap the benefits again, as greater volatility encourages clients buy and sell more bonds and stocks, according to analysts and executives.

As an emergency response to COVID-19, the Fed began buying government-backed bonds in March 2020. This added $4 trillion to its total balance sheet.

It was created to stabilise financial markets and to ensure that companies as well as other borrowers have sufficient capital. This strategy not only succeeded, it created unprecedented liquidity that allowed bond and equity traders to enjoy the most lucrative period since 2007.

These are the top five Wall Street banks that invest in Wall Street. JP Morgan Chase (NYSE:) & Co, Goldman Sachs (NYSE:), Bank of America (NYSE:), Morgan Stanley (NYSE: Citigroup According to earnings statements, (NYSE:) made $51 billion more in trading revenue last year than in the three prior quarters. This is a significant increase over the comparable quarters that were available in the year before COVID.

Bank stocks have outperformed the wider market due to the trading boom and a surge in global deal-making. The KBW Bank Index has risen 40% over the past year, compared to a 16% increase in the.

Banks with big trading operations are likely to make a profit once more as the Fed withdraws the stimulus. Investors will be prompted to rejig again their portfolios.

“As investors look to position based on that volatility, that creates an opportunity for us to make markets for them. This would obviously lead to better performance,” Mark Mason, Citigroup Chief Financial Officer, told journalists this week.

Late September, Fed Chair Jerome Powell indicated that tapering was likely. A formal announcement will be made in November. The central bank indicated that it would look to stop asset purchases entirely by the middle of 2022, a timeline seen as too aggressive by investors.

The increased volatility that Powell made in September has already had an impact on banks. It led to higher Treasury yields, and the decline of equity markets. Executives say that this led to an increase in trading volume at the beginning of the fourth quarter and end of third quarter.

In an interview with Sharon Yeshaya, Chief Financial Officer at Morgan Stanley, Sharon said that it is possible to see volatility as a result of the tapering. She also stated that she does not expect another ‘taper tantrum’ like 2013.

Markets were in a panic when the Fed decided to stop a quantitative easing programme. Investors began to dump riskier assets and move to “safe havens” which led to an increase in yields in government bonds and sharp declines in equity markets.

Fed officials feel confident that they will avoid this scenario by providing enough notice to the market about their intentions.

Devin Ryan, analyst at JMP Securities said that the sweet spot was where there is some volatility without causing disruption to the larger capital markets. This has been a key contributor to the healthy trading results in the last year.

The strongest performances of the largest U.S. banks in third quarter results this week were in equity trading. This was aided by record-breaking stocks, while a less impressive showing in bond trading reflected calmer markets.

Investors anticipate that activity will pick up in the lead-up to tapering when it finally begins.

Brandywine Global Investment Management spokesperson Patrick Kaser stated that “it will certainly be positive.” Trading businesses can benefit from volatility.