Loan Growth Divergence Continues Largest Banks Compared to Community Banks?

While loan growth continues to slow overall, the difference between the largest 25 banks as estimated and reported by the Federal Reserve (H.8 report) and community and all other commercial banks is noteworthy.

The largest 25 commercial banks are up 2.3 percent over the past year, while community and all other small commercial banks are up 7.6 percent.

There are a variety of possible explanations - and probably a combination of all:

  1. Slowing economy - at end of May, this will be the second longest economic expansion in recent history; most economists show continued slowdown after 2018.
  2. Tax cuts - the results of the tax cuts have been beneficial to corporations and have made many flush with cash; some of the cash have been used for stock buybacks and dividends, some for worker bonuses and much remains on balance sheet for future investment; if a slowing economy is forecast, will this long term investment be held back for a while?
  3. Community bank customers and communities continue to have higher borrowing needs - some good (stronger local economies) and some less good (weaker sectors such as agriculture).

Below is our weekly dashboard with the details: