Stephen Biggar, Product Strategy, Director Of Financial Services Research, Argus Research, breaks down how banks rate the consumer and what it means for the economy.
Transcript:
CAROLINE WOODS: So on a scale of 1 to 10, if you had to rate the US consumer based on what the banks were saying, one being worst, 10 being best, what rating would you give them?
STEPHEN BIGGAR: Well, we’re probably on an 8 at this point. I would say certainly, the banks have already added to reserves ahead. If you think back a quarter or two, they were looking for a slowdown in the economy. They were looking for higher unemployment. You know, above this kind of 4% level, 5 to 5 and a half. I think that’s where banks start to get a bit worried that they have enough in reserves. And we’ve had some pockets of weakness in credit card and auto loans, particularly at the lower end consumer. There’s definitely a bifurcation there at income levels when it comes to credit quality and growth also. So so I’d say it was pretty solid in terms of how consumers have been reacting. One thing I didn’t mention as well is that the deposit costs, there was a lot of pricing pressure when rates hit, hit their peak and until the Fed started to reduce. So that was a problem going back about a year or so. Even even the costs on deposit, that deposit pricing pressure was not there this quarter. So so banks are they’re OK in this higher for longer interest rate environment. And that’s because they’re big holders of fixed income securities. And those move up in value or stay higher in value as rates are, are where they are. And they’re able to reprice those as, as they’re lower yielding securities are maturing, they’re able to put those into higher yielding securities. So that’s actually been a benefit. I think if you talk to the average bank, they’d say, well, a little bit lower rates would be good because that would help stimulate loan growth, which has again, this kind of low single digit level. They’d like that to be a little bit higher, but but higher for longer is not universally bad for banks by any means.
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