Outlook for US Regional Banks

Apollo Chief Economist

Regional banks are impacted by higher funding costs, deposit risks, regulatory pressures, and asset declines, including future credit losses from the lagged effects of Fed hikes, and these forces combined are likely to result in tighter credit conditions. Our weekly banking sector chart book is available here, key charts inserted below.

Lagged effects of Fed hikes combined with tighter credit conditions...
Source: Apollo Chief Economist. Represents the views and opinions of Apollo’s Chief Economist. Subject to change at any time without notice.
Weekly data shows that bank deposits are declining for both small and large banks
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist
FRA-OIS spread remains elevated
Source: Bloomberg. Note: Ticker used USFOSC1 BGN Currency. As of March 13, 2023.
FRA-OIS spread at levels seen in March 2020
Source: Bloomberg. Note: Ticker used USFOSC1 BGN Currency. As of March 13, 2023.
Fed Discount Window borrowing higher than in 2008
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist
Share of insured deposits, by bank size
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist
Divergence recently between small bank and large bank lending growth
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist
Small banks account for almost 70% of all commercial real estate loans outstanding
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist
Interest rate on checking accounts versus the Fed funds rate
Source: FRB, RateWatch, Haver Analytics, Apollo Chief Economist

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