Commercial Banking in the US
The Commercial Banking industry is composed of banks regulated by the Office of the Comptroller of the Currency, the Federal Reserve Board of Governors (Fed) and the Federal Deposit Insurance Corporation (FDIC). Banks generate most of their revenue through loans they originate to customers and busin...
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| Format: | Market Research |
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| Language: | eng |
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| Summary: | The Commercial Banking industry is composed of banks regulated by the Office of the Comptroller of the Currency, the Federal Reserve Board of Governors (Fed) and the Federal Deposit Insurance Corporation (FDIC). Banks generate most of their revenue through loans they originate to customers and businesses. Loans are made at various interest rates that are influenced by different factors, including the federal funds rate (FFR), the prime rate, debtors' creditworthiness and macroeconomic performance.
The industry experienced mixed performance. Industry operators benefited between 2017 and 2019 due to interest rate hikes by the Fed and increasing economic activity. In 2020, the COVID-19 pandemic caused domestic and global dollar funding pressures, creating havoc in the Treasuries market and causing the Fed to act as dealer of last resort by flooding the international and domestic dollar funding markets with liquidity. The Fed held down interest rates near zero to stimulate the economy; despite this, weak economic performance in 2020 limited demand for bank lending and investment, causing industry revenue to decline. In 2022, the Fed began increasing interest rates in an effort to curb historically high inflation. Commercial Banks are expected to benefit from the increased rates. In the past five years, industry revenue grew at a CAGR of 3.2% to $1.2 trillion, including 14.9% in 2023 alone, when profit margins will grow to 38.2%.
Industry revenue will drop at a CAGR of 0.6% to $1.2 trillion over the five years to 2028, when profit margins will drop to 37.1%. The Federal Reserve is expected to continue raising rates for a couple of years. Benefitting industry operators by increasing interest income. Acquiring financial technology start-ups to compete in a changing technological and financial environment will increase. |
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