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A TD Canada Trust branch at King and Bay streets in Toronto, an intersection from which healthy earnings reports emanated this week.MARK BLINCH/Reuters

Hot markets are helping Canada's biggest banks extend their run of record earnings, bolstering the bottom lines of their capital markets and wealth management arms.

Across the Big Six banks, all of which reported third-quarter earnings in the past week, capital markets earnings rose 32 per cent on average over the prior year. The biggest driver: Underwriting and advisory fees that stem from heavy deal flow.

In healthy markets, chief executive officers are much more likely to go out and acquire. At the same time, companies are more likely to raise money, so they hire investment bankers to help.

Strong equity markets have also buoyed wealth management operations, increasing the value of assets under the banks' management. Financial institutions earn fees on a percentage of these asset values, so better valuations immediately translate to bigger revenues.

However, capital markets profits can be volatile. The S&P/TSX Composite Index has soared 22 per cent in the past year, and the S&P 500 crossed the 2,000 mark for the first time this week, causing people to fear a correction.

If a pullback materializes, it will likely sap deal flow and put a damper on investor confidence.

Most banks stress their businesses are diversified enough to weather a storm of this sort. Domestic personal loan growth, for one, keeps growing – albeit at a pace slower than the lending frenzy of the past few years.

Personal real estate lending expanded by an average of 5.5 per cent last quarter, according to

analyst Jason Bilodeau at Macquarie Securities, and growing revenue streams such as credit card fees are emerging as big helpers.

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce rounded out the latest earnings season and both benefited from strong capital markets and wealth management profits. They also reported healthy profits across most of their core businesses.

TD made $2.11-billion in the third quarter, or $1.11 a share – a record for Canada's second-largest lender. Underlying TD's success is sustained growth in its Canadian retail division, which includes wealth, insurance and personal and commercial banking.

Although personal loan growth is slowing – up only 5 per cent from the year prior, and up just 3 per cent in the personal real estate division – TD has helped to offset the effect on its earnings by striking deals. In the recent past TD has acquired Epoch Investments, Target Corp.'s U.S. credit card business and, most recently, half of the Aeroplan credit card portfolio from CIBC.

Growth in TD's U.S. retail banking division still hasn't taken off, with earnings climbing to $449-million (U.S.), up 4 per cent from the year prior. This rise was largely driven by non-cash gains from lower loan-loss provisions and because the U.S. economy is growing, but not quickly enough to generate big bank earnings. Lenders have been forced to compete for loans by lowering their rates, eating into their margins

Despite the record total profit, chief financial officer Colleen Johnston stressed this isn't an easy market to mint money in. "The banks are still facing a pretty tough operating environment, and we are seeing slowing loan growth and low interest rates," she said in an interview. The yield on the five-year Government of Canada bond has dropped more than 40 basis points since the start of the year, which weighs on margins.

Ms. Johnston acknowledged that TD's earnings were boosted by acquisitions, some foreign exchange gains as well as a drop in credit losses, which are now at their lowest level in five years. "It's hard to believe that we can sustain that kind of level," she said.

CIBC's healthy $921-million third-quarter profit, amounting to $2.26 a share, stemmed from solid results across its core divisions. Strong capital markets helped, and the wholesale banking unit's profit jumped 32 per cent to $282-million, aided by strong underwriting activity, but strong markets also pushed wealth management's profit to $121-million, up 19 per cent over the same period a year ago.

CIBC's retail and business banking arm saw its profit slip 4 per cent to $589-million, but that drop can be misleading because the bank recently sold half of its Aeroplan credit card portfolio. Accounting for this change, the division's earnings climbed 4 per cent.

CIBC was also aided by a sharp drop in provisions for credit losses, which plummeted $125-million, or 39 per cent, from the year prior.

The bank is in the midst of transforming some of its core businesses. The retail banking arm has revamped its credit card portfolio and ended its relationship with mortgage brokers, while the wealth management division was recently given extra importan​ce​ in the bank's overall earnin​g​s mix.

CIBC has expand​ed​ in wealth management, particularly in the United States, and wants to consistently generate at least 15 per cent of its total profit from this division. The unit accounted for​ 13​ per cent of total profit in the third quarter.