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Higher interest rates and a steepening yield curve, driven by strong economic growth and a winding down of global central bank stimulus are helping banks. Interest margins are expanding at some of the nation’s biggest banks as interest rates on loans rise faster than the interest cost of deposits. So long as higher interest rates don’t dent loan demand, a rising interest rate environment can be positive for the banking industry.
The WSJ has more.
Finally, there was no sign anywhere that consumers or businesses are having trouble staying current on their loans. Both JPMorgan and Wells Fargo lowered their bad-loan reserves, indicating they expect lower defaults, while Citigroup saw only a slight buildup in reserves.
In short, consumers and businesses are in good shape, driving improved earnings at major banks. That doesn’t mean stocks won’t fall if rates keep rising, but it does mean that raising rates from current levels isn’t disastrous for the U.S. economy.
Read more here.
Jeremy Jones, CFA
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