Banks brace for slower economy, stricter rules, rate dip in 2024.

January 16, 2024
1 min read

The U.S. banking industry is expected to face challenges in 2024, including a slower economy, tighter regulation, and a potential drop in interest rates, according to S&P Global Ratings. Despite greater stability following bank failures in 2023, risks such as declines in deposits, funding cost pressures, unrealized losses, commercial real estate exposures, and economic uncertainty remain. Regulators may also propose further updates to supervision and regulation in response to the failures. S&P predicts that banks will experience modestly declining deposits and a leveling off of funding costs in the first half of 2024, although profitability may dip. However, banks are still expected to build capital and generate a return on common equity of 10% to 11%. Asset quality pressure is expected to increase but remain manageable. Key risks to these expectations include a deeper recession, higher unemployment, and significant asset quality deterioration. Additionally, high inflation persisting despite a slowdown in growth could force the Fed to maintain higher interest rates for longer.

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