Bank Executive Business Outlook Survey
Banker experiences over the past 12 months and their overall confidence in the next 12 months hit new lows since we started tracking these measures more than three years ago.
What explains the shift to this negative outlook? It could reflect that the prior survey was taken subsequent to the passage of the federal tax-cut legislation, which may have led to a temporary spike in optimism. This is supported by the fact that, outside of last quarter’s results, the trend for both indices has been downward since Q2 2016.
Other possible factors to consider include a rising interest rate environment and expectations that the Fed will continue on that path, concern about higher projected federal deficits and a possible trade war, higher than expected competition for deposits, and a growing wariness about new competition from nontraditional financial firms.
Along those lines, we asked survey participants to rank the threat level of each of the following entities on a scale of 1-5, with 1 being the lowest and 5 being the highest: 1) Amazon (which is in talks with J.P. Morgan to offer checking account-like products), 2) fintechs that compete with banks, 3) the nation’s largest banks, 4) and Goldman Sachs (which launched its new online personal loan platform “Marcus” in October 2016). By overwhelming margins, community bankers described Amazon’s potential entry into this market as their greatest threat.
Additionally, bankers were asked what they see as the biggest risk when choosing a fintech with whom to partner. A lack of understanding of regulatory and compliance issues was the top response, followed by the increased risk of data breaches.
In what is likely welcome news at the White House, one-third of respondents said the enactment of the recent tax reform law has increased demand for credit at their bank. In less positive news for the White House, however, fewer than one in five of the bankers surveyed said the recently announced trade tariffs had positively changed their outlook on President Trump’s stewardship of the U.S. economy.
Highlights from other parts of the survey include:
- Deposit Competition. The number of respondents reporting that deposit competition increased over the last 12 months jumped by 13 percentage points since last quarter. The number of respondents expecting competition for deposits to increase over the next year also rose again from 80% in Q4 2017 to 88% this quarter.
- Access to Capital. Only 24% of bankers across all assetsize tiers and regions reported an improvement in access to capital this quarter, down from 35% last quarter. The number of respondents who expect to see even more improvement over the coming year (23%) also dropped compared to last quarter (37%).
- Funding Costs. The number of banks reporting higher funding costs rose three percentage points this quarter to 81%. Nearly 92% of respondents across all asset-size tiers and regions expect to see funding costs rise in the coming year, compared to 89% last quarter and 87% in Q3 2017.
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