Outlook for Regional Banks

Apollo Chief Economist

The costs of capital have increased because of Fed hikes and tighter credit conditions. As a result, there are firms every day that cannot get a new loan or refinance their maturing loan.

This is how monetary policy works. Higher costs of capital slow down financings and, ultimately, growth and inflation.

With the Fed saying that interest rates will stay high for “a couple of years,” this process will continue to slow down the economy. Our outlook for regional banks is available here and documents current trends in detail.

Outlook for US regional banks:Credit growth slowing and credit conditions tightening
Small banks lend to small businesses
Source: FDIC, Apollo Chief Economist. Data as of Q3 2022.
Half of US employment is in firms with fewer than 500 employees
Source: Census, Apollo Chief Economist
SVB having a permanent effect
Source: FRB, Bloomberg, Apollo Chief Economist
Weekly Fed data shows small and large bank lending growth slowing rapidly after SVB
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist
SVB and FRC lifted funding costs for banks permanently
Source: ICE BofA, Bloomberg, Apollo Chief Economist. Note: Unweighted average spreads of bonds from ICE 5-10 Year US Banking Index, C6PX Index for bonds issued before Jan 1, 2023. There are eight banks in the Regional index and 41 banks in the Diversified index. Regional banks include BankUnited, Citizens Financial, Huntington, and Zions. Diversified banks include JP Morgan, Citibank, and Bank of America.
Bank lending will shrink significantly over the coming quarters
Source: FRB, Haver Analytics, Apollo Chief Economist
Tighter credit conditions after SVB dragging down the economy
Source: Conference Board, FRB, Haver Analytics, Apollo Chief Economist
Tighter credit conditions dragging down the economy
Source: NFIB, FRB, Bloomberg, Apollo Chief Economist
Banks’ willingness to lend to customers approaching 2008 levels
Source: FRB, Bloomberg, Apollo Chief Economist
Credit card delinquency rates rising
Source: New York Fed Consumer Credit Panel / Equifax, Apollo Chief Economist
Auto loan transitions to serious delinquency approaching 2008 levels
Source: FRBNY Consumer Credit Panel, Equifax, Haver Analytics, Apollo Chief Economist

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