Bank Executive Business Outlook Survey
For those betting that the direction of the economy and the banking sector would become clearer this fall, you may need to pull out your wallets and pay up. After rising for two consecutive quarters, the Banker Confidence IndexSM (Index) dropped in the third quarter by 2 points over the 2nd quarter to 50.1—indicating that the banking sector is still cautious about its prospects over the next year.
One possible reason for the decline in the Index is that industry leaders were simply “holding their powder,” awaiting the results of the U.S. Presidential Election. The survey was conducted between October 19 and November 4, 2016, right before Election Day. Or banks may be growing weary of waiting for more concrete evidence that the current economic recovery is broad and deep.
Banks may, in fact, be in a curious predicament where they are caught in a shortterm bind. Economic growth may be strong enough that the Federal Reserve could be inclined to raise rates—a prospect that many experts predict, and that banks have indicated in the past that they welcome—but not quite strong enough to drive enough loan demand that banks would be able to aggressively reprice lending.
Whatever the reason, the Index does indicate that, when it comes to balance sheet fundamentals, banks do not see the conditions for the next 12 months as positively as they did earlier this year, with only a very slight majority believing that short-term prospects for the sector will improve.
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