A new economic forecast indicates that U.S. banks will see greater growth in the “bread and butter” business of taking deposits and lending money, writes Reuters.
The US economy is expected to continue to expand and the Federal Reserve has said it is ready to raise interest rates for the first time in three years, which could mark the end of the low rate environment that banks have been having. known.
Net interest income declined during the pandemic as interest rates were cut and borrowing decreased.
Fed action could change that from 2022, with signals that it is ready to raise interest rates by March; Fed funds futures forecast three more increases later in the year.
Net interest income accounted for 60% of revenue in the fourth quarter for the median bank of the country’s 12 largest, according to Barclays analyst Jason Goldberg. This is the lowest proportion in six years – down from 66% three years ago.
According to JP Morgan analysts, net interest income from its businesses beyond securities markets could reach $50 billion in 2022, up from $44.5 billion in 2021.
This will mean that some banks will benefit more than others, depending on their ability to hold low-cost deposits and use them to lend and invest in higher-yielding securities, with banks whose portfolios are focused on floating rate loans come first.
Bank of America executives were more vague about their outlook, saying they expected the year to bring “robust growth.” And Citigroup executives said they don’t plan to give net interest income estimates until Investor Day, March 2.
Fed Chairman Jerome Powell hinted this week that interest rate hikes are coming, writes PYMNTS.
This comes as the crypto was heading in the same direction as the stock market, with bitcoin falling almost 5%. This stems from the fact that as interest rates rise, investors tend to pull money out of speculative investments like crypto instead of things like bonds.
Read more: Bitcoin’s much-vaunted decoupling from the reality of the Fed’s rate hike