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Bank earnings season kicks off Friday, with some of the country’s biggest financial institutions delivering their quarterly reports to shareholders. We’ll hear from JPMorgan Chase, Citibank, Wells Fargo and PNC.
Banking is a bellwether for how the economy’s doing — and many people are watching the sector’s performance for signs of the impact of Federal Reserve interest rate hikes or an economic slowdown.
The financial condition of banks is even more important right now than usual, given last month’s failures of two smaller banks, Silicon Valley and Signature, and the extraordinary efforts of federal regulators to shore up the system.
As we dissect Friday’s reports, the first big question will be: After those unexpected bank failures, can we expect more trouble?
According to CFRA Research analyst Ken Leon, there’s not much to worry about for the megabanks. “We’re going to see stable financial results — in line or better than expected,” he said.
These already immense companies have actually fattened up recently, Leon added, as depositors pulled money out of smaller institutions during last month’s bank runs. They also face less financial risk than their smaller rivals, per Matt Colyar at Moody’s Analytics.
“Bigger banks are lending to your larger corporations and have a little bit more confidence there,” he said. “They’ve also been under tighter regulatory scrutiny, so they’re more confident in their balance sheets.”
So what about the midsize and smaller banks? They now face more regulatory oversight, possibly higher interest rates and a range of uncertainties.
They’re definitely getting more cautious, said Quincy Krosby at LPL Financial.
“The biggest concern for the economy right now is whether or not the — I want to say ‘crisis,’ but let’s call it the ‘stress’ in the banking sector — has led to a material slowdown in lending to small businesses and consumers,” she said.
Back to the question we started with: Can we expect more bank runs and federal bailouts?
“If I knew that answer, you’d be talking to me from, like, an island in the Caribbean,” said economist Gerald Cohen (who was actually in his office at the Kenan Institute at the University of North Carolina, Chapel Hill, during the interview).
No one can know for sure whether more bank failures are on the horizon, but, he said, “I’m cautiously optimistic that this isn’t going to turn into the Global Financial Crisis.”
Because federal regulators guaranteed all deposits and provided liquidity, Cohen added, and because businesses and households are in pretty decent shape financially.
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