US Banks Outlook Bright for Next Year... This Year's Merger Volume Largest Since Financial Crisis

[Photo by AFP Yonhap News]

[Asia Economy Reporter Park Byung-hee] The scale of bank mergers in the United States this year is recording the largest since the 2008 global financial crisis, according to the Wall Street Journal (WSJ) on the 28th (local time). Analysts suggest that banks are expanding their size amid optimism that if the U.S. base interest rate hike materializes next year, bank profitability will improve and loans will increase due to economic recovery.

According to financial information firm Dealogic, the announced merger volume by U.S. banks through September this year exceeds $54 billion. This is three times the $17 billion during the same period last year, which was struggling due to COVID-19.

Although the economy has emerged from the COVID-19 recession phase this year, loan demand remains at a low level. With the spread of 'with COVID' worldwide and the start of the third vaccination in the U.S., there is a forecast that loan demand will increase further if the economic recovery trend expands more next year.

The expectation that the central bank, the Federal Reserve (Fed), may raise the base interest rate starting next year also adds to the optimism about the banking industry. An increase in the base interest rate expands the gap between banks' deposit rates and loan rates, leading to increased bank profits.

According to the dot plot released at last week's Federal Open Market Committee (FOMC) meeting of the Fed's monetary policy, 9 out of 18 FOMC members predicted a base interest rate hike next year. This is an increase of 2 members from 7 in June.

Thanks to the rosy outlook for the banking sector, bank stocks are also strong in the stock market. According to Bloomberg, as of the 27th, the KBW Bank Index, which reflects the stock price changes of 24 major U.S. banks, rose 37% this year. This is the highest increase in 24 years since 1997. It far exceeds the S&P 500 Index's 18.3% increase this year. Bloomberg also reported that after the dot plot was released last week, the stock prices of all 24 banks included in the KBW Bank Index rose by more than 3.5%.

This content was produced with the assistance of AI translation services.